Does Applying For More Than One Credit Card At A Time Hurt Your Record

Since 1956, the Fair Isaac Company, now known as FICO, has used a scoring system that negatively impacts almost all adult Americans. You may be more familiar with the term “FICO score”. Your FICO score determines what interest rate you will pay on your credit cards, car loans and mortgage. The higher your FICO score- or credit score- the lower your interest rate. The lower your score, the higher your interest rate. In other words, it’s a really important number to know. Over 1/3 of Americans don’t know their score, and even fewer people realize that something which they give almost no thought to-such as applying for credit cards-can lower their credit score.

It’s Saturday morning, and you’re running errands. You pop into your local store, and there’s a friendly person holding a clipboard. “Would you like to open a charge account? Save 20% on your first purchase”, they ask. It sounds good, doesn’t it? So you open one. You then go to another store that same morning and do the same thing. (They were offering a free toaster to sign up). By the end of the day, you now have three new credit cards, but that is not at all you have. You also have a lower credit score to go with them.

How did this happen? Each time a credit card application is submitted for you a “hard” inquiry is sent to the credit bureau. By the end of that Saturday you would have had had three “hard inquiries”. FICO will not disclose their exact formula for determining your credit score. However, they have disclosed that one determining factor in scoring is the amount of “new credit loads” on your file. If you’ve been applying for and getting approved for a number of new credit cards in a short period of time, it can lower your credit score as much as 10%. That can make a big difference in what you pay, especially on a car loan or mortgage.

By applying for all these credit cards in quick succession, you’ve inadvertently raised a red flag at the credit bureau. It appears to the credit bureau that you’re desperate for money, making you appear to be more of a credit risk. To prevent inadvertently lowering your credit score, you should wait at least three months between each credit card application. This also applies to applications for American Express, Visa, MasterCard, etc. According to the Pew Safe Credit Cards Project of March 2009, 93% of credit cards allow the issuing company to raise your interest rate at any time, even without a change in your credit score. Be credit smart. Protect your credit score and you can save yourself a lot of money.