Does Cancelling A Credit Card Affect Credit Score?
Applying for a New Credit Card, How Does It Affect My Credit Score?
When you apply for a new line of credit for instance a credit card, personal loan, or a car loan, the credit provider will pull your credit report. This means that you get what is termed as a ‘hard inquiry’ on your report. Hard inquiries affect credit scores and could be damaging if there are many within a short period. But usually, a single credit card application only leads to a slight and short-term decrease in the scores.
What is a Hard Inquiry and What is it Used For?
The bank will do a credit check to ascertain your credit history every time you apply for a credit card—online, over the phone, via a personal interview, or otherwise. They want information on credit history, credit card use, payback ability, and other factors that would assist in clarifying your prior debt-recovering performance. They have to do what is often called a "hard inquiry" to get your credit report.
This is unlike a "soft inquiry" that does not affect credit ratings. Soft inquiries arise from a lender evaluating you for items or from you reviewing your credit record. Applying for as much new credit as you desire in a certain period will not change your scores in any manner. Hard inquiries indicate the credit check for new loans; so, your scores will be somewhat dropped.
Inquiries and credit scores: how much are they affected?
The general effects of a one-hard credit card inquiry on your scores are normally slight. According to FICO, a single inquiry usually lowers your scores by less than five points. But, the effect is larger when one has little or no credit history to start with in the first place. A person who has had a credit history for about ten years will probably suffer less damage than someone who only recently began using credit.
The more recent inquiries you have, the more your scores will be pulled down. This is not detrimental if only one credit inquiry is made, but, if five or more credit inquiries are made in a short period, credit scores can be slashed by dozens of points as quoted by Fair Isaac. This signals to the lenders that you are aggressively seeking new credit, maybe because of some sort of financial embarrassment. An applicant should not apply for too many inquiries over any 12 months because most lenders will run away once they see so many inquiries.
Inquiries Fade from Your Credit Reports Over Time
The effect of hard inquiries also decreases over time, just like with soft inquiries. These entries will appear on your Equifax, Experian, and TransUnion credit reports for 12 months, although their influence on your credit score declines at a faster pace. FICO model scores analysis of the impact of inquiries is limited to the past year while that of VantageScore is up to two years. Regardless of the credit scoring system in use, any inquiry older than two years does not affect your scores in any way.
Over time, as months pass after a credit card application, the inquiry will mean smaller and smaller. By the time 6 months or so elapse after the application date, you are not likely to experience any more score reduction resulting from that particular hard pull anymore. I just want to remind you that every new application means starting the clock for another inquiry once again.
Measures to reduce the effect on your scores
If at all possible, you should try to limit the period over which you have applied for credit to the shortest possible span rather than stretching it out over several months. Never forget the fact that a single request may not make a big impact, but multiple requests will cause a great deal of damage. When you group your applications – for example, applying for a mortgage, auto loan, and a credit card within two weeks instead of applying for each one a month apart – you ensure that all of those inquiries vanish simultaneously after one year instead of affecting your scores.
Of course, life does not always enable one to time credit applications so conveniently. It is important to remember that the FICO and VantageScore models know that consumers applying for a mortgage or car loan may apply at multiple places within 30-45 days as they try to find the best rate. If you have made more than one auto, mortgage, or student loan inquiry within a specified period these are treated as one inquiry and do not continue to hit your scores several times. Thus, even if you cannot combine all of the above, comparison-rate shopping loans do not harm you.
You should also refrain from applying for credit that is not essential. For ‘Everyday’ purchases only use open credit cards that offer deep discounts for items you intend to buy and avoid using credit cards ‘just to check’ your credit limit with other credit card companies or in getting loans. It just takes a while for the interest in the old reports to decrease and these unnecessary inquiries can cost you points all the time. Be smart – use when necessary so that your scores will be allowed to recover on their own before the next application is required in the future.
Monitor Your Credit Reports
The last tip is to review your credit reports available on AnnualCreditReport. Com within two weeks after applying for new credit. This saves time for you to contest any discrepancies regarding the account or inquiry as soon as you identify such to prevent the information from doing more harm. It also allows you to see exactly how large an initial impact the inquiry is having across the various scoring models.
It is always advisable to keep abreast of how your accounts and inquiries look on your credit file. Discovery of these unwanted errors can enable you to get increased credit limits, better rates, loan approvals, and scores.
The Bottom Line: In other words, don’t bother worrying about a single application.
Applying for a single credit card will only slightly and temporarily harm your scores, if at all. However, ensure that you are wary of multiple application dates frequenting the timeline as frequent inquiries and account openings are a red flag to lenders. When you are establishing new credit, spread out new accounts over time if you can and cut back on those ‘just to see’ cards to keep your credit scores top-notch. Check your credit reports regularly to ensure that any reporting errors do not reduce your score before you know it.
This means that as long as you use credit responsibly and sparingly by applying for it only when necessary, then one application does not pose a significant threat to your scores, rather it only causes a few rounding errors. Look for pre-approved offers and get a card only for those that offer rewards or a low introductory rate that is better than what you are currently getting with your existing cards. Take this advice and there will be no more anxiety over a single application getting in the way of a high credit score.
Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!