With Christmas on the horizon and many consumers looking to purchase gifts for their loved ones, making sure the right financial moves are made is extremely important. Some consumers might open a credit card just for the holidays and look to pay it off during the first half of 2013, but they should know that applying for credit cards can affect their credit score.
According to Fox Business, each time consumers apply for credit, whether it's for a new card, mortgage or car loan, a lender will ask to see their credit history. When the lender asks to see the credit history, it counts as an inquiry on your credit report.
While having a few inquiries on your credit report isn't a terribly bad thing, too many inquiries can hurt your credit score. The source released different types of credit report inquiries that could have an impact on credit scores.
Most commonly seen inquiries
One of the most commonly seen inquiries are the ones that have no impact on a consumer's credit score. Since inquiries are made any time your credit report is pulled and can sometimes happen without applying for credit, consumers will want to make sure that they are checking their credit reports at least once a year. Under federal law, Americans can get a free copy of their credit report from each of the three major bureaus once a year through AnnualCreditReport.com.
The inquiries made without applying for credit shouldn't be worried about since they don't affect credit score and creditors don't see them.
As opposed to credit inquiries by employers, inquiries that are sparked by credit applications are factored into credit scores and creditors consider the number of times you have sought more credit, which could indicate the person who is applying is having financial difficulties.
If Americans already have a credit score between the range of 700 and 750, inquiries should have a fairly small impact on their credit score, but they should still be kept to a minimum. Whether bills are paid on time is also a factor that creditors consider when they are looking at whether they should provide consumers with an approval for more credit.
According to Experian, one of the three major credit reporting bureaus, the number of inquiries is rarely the only reason for a poor credit score. Inquiries are known to be more important if Americans have other issues that are continuing to plague them, such as missing payments or having too much credit card debt.
Another factor that may or may not come into play when shopping for a home is getting multiple credit card offers. When Americans are shopping for a mortgage, it's common for them to apply to several lenders. All of the lenders will pull the applicant's credit score, but these multiple inquiries will not affect their credit score.
Most new credit scoring models can identify when applicants are trying to shop for the best rates and count multiple inquiries as just one or ignore them altogether.
If there are too many credit inquiries on a person's report as a result of them applying for too many credit cards or other loans, they should be sure to consider getting their finances in order as opposed to being worried about the impact inquiries could have on their credit score. Americans should set up a basic savings account to save up money for a rainy day if they find themselves using credit too often.
According to new research from Fair Isaac Corporation, the company responsible for FICO scores, the number of Americans with top-notch credit scores is at the highest its been since 2008, signaling a recovery from the recession.