We recently purchased a Fujitsu ScanSnap S300  and have been scanning a lot of our documents to reduce the number of documents we retain. One of the documents we came upon were two printouts of my wife’s FICO credit score and credit reports from Equifax, through myFICO . Earlier this year she signed up for the trial to see what her score was and in between the two inquiries she applied for a credit card.
The first report was pulled in mid-March and she had a glowing score of 804. The second report was pulled a month later and her score was 790, still very strong.
The only difference? She applied for and was approved for a new credit card. It cost her fourteen FICO points.
myFICO Report & Score
The first part of myFICO’s report will list the good, the bad, and the ugly parts of your report in summary format. Items that are hurting your score or helping your score are highlighted, giving you a good indication of what you might want to do (or avoid) to improve your score. In the first report, there were no red (bad) items. With a score of 804, I’m not surprised there weren’t any red items. In the second report, there was only one – her score was hurt by the hard inquiry for the credit card and a fairly new line of credit with the approved credit card.
Fourteen points isn’t a lot when you start at 804 but, if myFICO’s credit score tables , it could make a difference if you’re at the range boundaries. If you have a score of 765 and looking for a new home loan or refinance, fourteen points is huge. I would argue that you should not be applying for credit for a full year before you plan on getting a loan and certainly avoiding inquiries and new accounts within six months.
What Gets Affected?
When a new line of credit is added, it affects a bunch of the publicly available metrics that factor into your credit score:
- Hard inquiry: When a lender pulls your credit to make a lending decision, it’s called a hard inquiry and that negatively affects your score. When you apply for a credit card, the company will initiate a hard inquiry.
- Average account age: Your new credit card will have an age of 0 years, 0 months; which will lower the average age of your accounts and negatively affect your score.
- Credit utilization: This is the percentage of your total credit that you are currently using, the lower this is the better. When you add a new account, you will increase the total credit you have and lower the percentage you are using (assuming you don’t immediately charge to the card).
There are many factors that go into your score, but the order of magnitude of their cumulative effects on your score seems to at that level. If you were to apply for a new account, you probably won’t get dinged exactly fourteen points but it’ll be in that general area. I wouldn’t expect a fall of a hundred points.
If you have personal data like this, please share in the comments (anonymously if you prefer). I’m curious to know how if this order of magnitude is in fact correct or if we’re simply drawing too many conclusions from a data set of one.
(Photo: rubenerd )