Credit Tips: How applying for credit cards can lower your score. May 1
It is tempting to apply for new credit cards when they are offered. But each time a person applies for credit – whether the application is approved or not – it can have a negative impact on one’s credit score. So next time a clerk in a department store offers a 10 percent discount on your purchase if you will simply fill out a form and apply for the store’s credit card, consider the potential consequences.
You might save a few dollars on your new shoes or jeans, which is appealing. But it could cost you hundreds of dollars when your credit score drops and the bank raises the rate on your line of credit or charges you higher fees to take out an auto loan or get a mortgage to buy a home.
In fact, even if you are shopping for a mortgage and want to apply to several mortgage companies and banks to find out who will offer you the best interest rate, reconsider your approach. Yes, it is a great idea to browse around and get the best deal – especially when lenders are competing by offering such perks as lower rates or closing fees. But the same principal holds true. The more applications you put out there, the more your credit score is adversely affected.
Experts suggest that instead of applying to multiple lenders, it is better to interview them and ask for written estimates of your loan fees, closing costs, and interest rates. Because rates are constantly changing the lender may be reluctant to put any figures down on paper, but at least talking to them will give you an idea of what they have to offer. Shop around and choose the loan that suits your needs the best. Then apply once – not all over town – and you will likely get the loan you want without risking any lost points on your all-important credit score.