Getting a shiny, new credit card is exciting. It comes with a pretty picture, a nice credit line and a license to shop. Of course, you have to use the card responsibly in order to maintain and build your credit score. Don’t go on an application spree every month with the impression you are building your credit arsenal. By understanding how the credit score model works, you can time your credit card applications -- every three to six months -- to lessen the impact on your credit score.
Credit Score Basics
Your credit score is based off the information contained in your credit score. You have three credit reports -- Experian, TransUnion and Equifax -- and each comes with a credit score. You also have a FICO credit score, which is the standard used in the credit industry. According to MyFICO.com, your credit score comprises your payment history, balances, age of accounts, new credit and types of credit used.
Every single credit card application shows up on your credit report. The credit reporting bureau files this information under your hard inquiries section. According to MyFICO, credit inquiries account for 10 percent of your credit score. Each inquiry lowers your credit score by a few points. The more you have, the lower your credit score. By keeping your inquiries to a minimum, you reduce the number of lost points. According to Bankrate, inquiries affect your FICO score for only a year -- although each inquiry appears on your report for two years. To truly minimize your losses, wait a year between applications.
The length of your credit history makes up 15 percent of your credit score. Every new account you add to your portfolio decreases your average account age. Instead of opening multiple accounts, wait for your accounts to age to at least 6 months before you add a new one.
Positive Account History
Your credit report is really a snapshot of your risk. Lenders use your credit report to assess whether you are a good bet or a lost cause. Most credit issuers want to see at least six months of responsible credit use before taking a risk. Make on-time payments and stay under your credit score for the best scores. Keep your balance less than 30 percent of your limit for optimal credit utilization.
A credit application denial is different than waiting between approved credit applications. According to Mint Life, you want to wait at least 90 days after a denied credit card application before resubmitting. After your denial, you receive an adverse action letter stating the exact reason you were denied. Use that letter as a road map to fix the problems with your credit. Once you fix the issues, try again. Credit repair isn’t a quick fix. Expect the process to take some time.
- MyFICO: Credit Checks & Inquiries
- Yahoo! Finance: How Will Opening a New Account Affect My Credit?
- MyFICO: What’s in My FICO Score
- Mint Life: Facebook Fan Q&A: My Credit Application Got Declined — How Long Should I Wait to Apply Again?
- Chicago Tribune: Understanding Credit Utilization
- Bankrate: How Credit Inquiries Affect Credit Score
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