Sometimes it’s the little things in life that can make all the difference.

A small ding to your credit score can drop it just enough from being in the excellent credit score range to the good score range. That can be enough to cause lenders to charge you higher interest rates, costing you money that you might otherwise save without the small nick on your credit score.

Inquiries, or new credit, account for about 10 percent of a FICO credit score. While that isn’t much when compared to payment history accounting for 35 percent of a FICO score, a credit score drop of up to 10 percent for having too many lenders look at your credit score can be enough to cost you real money in the long run.

There are two types of inquiries — hard and soft — and the first will hurt a credit score and the latter won’t. Knowing the difference can help you know when to act so that an inquiry doesn’t hurt your score, or when you don’t have to worry about it.

What is a Hard Inquiry?

An example of a hard hard inquiry is when you apply for a credit card and the issuer “pulls” your credit report from one of the three major credit bureaus.

The hard inquiry may lower your score up to five points, depending on the rest of your credit profile. Going months between credit inquiries can have less of an impact than having a bunch at the same time.

Applying for a mortgage is another hard inquiry. The FICO score allows mortgage rate shopping, so applying with four different mortgage lenders in 45 days is counted as only one hard inquiry.

Hard inquiries stay on a credit report for two years, but the FICO score ignores them after 12 months.

Whatever your credit score, potential lenders will look at you as risky if you have too many inquiries over a short period. For people with a short credit history, this can be especially troublesome.

How To Avoid a Hard Inquiry

If you want to avoid a hard credit inquiry that could cause your credit score to drop, the simple solution is to not apply for new credit. But that isn’t always practical, such as if you want to find a better credit card or want to buy a home or car.

There are some money management steps you can take, however.

Start by not applying for credit cards that you know you won’t qualify for. Knowing where your score is on the credit score range can help you decide if applying for a card with some of the best travel rewards, for example, is worthwhile since many such cards require having excellent credit. Applying for a credit card that you probably won’t be approved for results in a hard inquiry and a rejection, which can also hurt your score.

Some credit card issuers target people with bad credit. If that’s you, be sure to read the fine print and make sure it’s a card you can live with. It may not have all of the features you want, but over time and by paying the bill on time, you can improve your credit score and move up to a better credit card.

These issuers may advertise that they won’t run a hard credit check and will base their decision on other factors, such as your income and employment history.

If you have good or excellent credit, a hard inquiry shouldn’t have much of an impact, if any, on your credit score. Keep your score high by paying your bills on time, don’t use more than 30 percent of the credit available to you, and have a good mix of credit.

When checking your credit score, look for errors and dispute them with the credit bureaus. Your vigilance should pay off with a better credit score and eventually should get you better credit terms. With that, a hard credit inquiry won’t hurt so much, if at all.

What is a Soft Inquiry?

Soft inquiries come in many forms, and none should hurt a credit score.

Checking your own credit report is a soft inquiry. It doesn’t lower your credit score, as some people think it does, and in fact is a good thing to do to make sure your score is good and the information on your credit report is accurate. Consumers can check their credit reports for free once a year from each of the three major credit bureaus.

Creditors you already work with may do soft inquiries by checking your credit report to see if you’re still creditworthy. Credit card companies do this monthly.

If you get preapproved credit card offers in the mail, those are soft inquiries that don’t affect your score.

If you’ve given a potential employer permission to view your credit report as part of a background check, it’s also a soft inquiry that doesn’t affect a credit score.

The post Soft Inquiry Vs. Hard Inquiry appeared first on Better Credit Blog | Credit Help For Bad Credit.

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The Fair Isaac Corp (FICO) scoring model is a calculation of various pieces of credit data by which your three-digit credit score is based. The term “FICO score” can be used for a wide range of different scores provided by the company because there are several active versions of the scoring model. Every few years, the company updates or changes the way the score is calculated.

Coming this Summer, FICO is releasing two new credit scores, the FICO Score 10 and the FICO Score 10T.  FICO suggests that by adopting the FICO Score 10 Suite, a lender could reduce the number of defaults in their portfolio by as much as ten percent among newly originated bankcards. The reduction in defaults is even higher for newly originated mortgage loans, at 17 percent compared to the current version used by that industry.

The FICO Score 10 will place more emphasis on personal loans, penalizing borrowers who take on personal loans to consolidate credit card debt and then choose to rack up more debt. The FICO Score 10T will look at “trended data” for the past 24 months to see how a borrower is managing their debt and will reward people who are working to pay off their debts but could cause people’s scores to drop if they have taken on more debt over time.

These models will likely help people with high credit scores have even higher scores and those with lower scores fall a little lower producing a bigger gap between low and average to high scores. It’s important to note that many lenders are still using old models, and this may not affect many people right away but as lenders start to transition it will be a bigger deal.

Check out the video below featuring, Connie Thompson of KOMO 4 News, Ted Rossman of Bankrate and Bruce McClary from the NFCC.

https://komonews.com/news/consumer/how-will-your-credit-score-hold-up-to-the-newest-scoring-model-changes

The post What You Need to Know About the Latest FICO Score Changes appeared first on NFCC.

Read more: nfcc.org

Sometimes it’s the little things in life that can make all the difference.

A small ding to your credit score can drop it just enough from being in the excellent credit score range to the good score range. That can be enough to cause lenders to charge you higher interest rates, costing you money that you might otherwise save without the small nick on your credit score.

Inquiries, or new credit, account for about 10 percent of a FICO credit score. While that isn’t much when compared to payment history accounting for 35 percent of a FICO score, a credit score drop of up to 10 percent for having too many lenders look at your credit score can be enough to cost you real money in the long run.

There are two types of inquiries — hard and soft — and the first will hurt a credit score and the latter won’t. Knowing the difference can help you know when to act so that an inquiry doesn’t hurt your score, or when you don’t have to worry about it.

Hard inquiry defined

An example of a hard hard inquiry is when you apply for a credit card and the issuer “pulls” your credit report from one of the three major credit bureaus.

The hard inquiry may lower your score up to five points, depending on the rest of your credit profile. Going months between credit inquiries can have less of an impact than having a bunch at the same time.

Applying for a mortgage is another hard inquiry. The FICO score allows mortgage rate shopping, so applying with four different mortgage lenders in 45 days is counted as only one hard inquiry.

Hard inquires stay on a credit report for two years, but the FICO score ignores them after 12 months. Whatever your credit score, potential lenders will look at you as risky if you have too many inquiries over a short period. For people with a short credit history, this can be especially troublesome.

What’s a soft inquiry?

Soft inquiries come in many forms, and none should hurt a credit score.

Checking your own credit report is a soft inquiry. It doesn’t lower your credit score, as some people think it does, and in fact is a good thing to do to make sure your score is good and the information on your credit report is accurate. Consumers can check their credit reports for free once a year from each of the three major credit bureaus.

Creditors you already work with may do soft inquiries by checking your credit report to see if you’re still creditworthy. Credit card companies do this monthly.

If you get preapproved credit card offers in the mail, those are soft inquiries that don’t affect your score.

If you’ve given a potential employer permission to view your credit report as part of a background check, it’s also a soft inquiry that doesn’t affect a credit score.

What you can do

If you want to avoid a hard credit inquiry that could cause your credit score to drop, the simple solution is to not apply for new credit. But that isn’t always practical, such as if you want to find a better credit card or want to buy a home or car.

There are some money management steps you can take, however.

Start by not applying for credit cards that you know you won’t qualify for. Knowing where your score is on the credit score range can help you decide if applying for a card with some of the best travel rewards, for example, is worthwhile since many such cards require having excellent credit. Applying for a credit card that you probably won’t be approved for results in a hard inquiry and a rejection, which can also hurt your score.

Some credit card issuers target people with bad credit. If that’s you, be sure to read the fine print and make sure it’s a card you can live with. It may not have all of the features you want, but over time and by paying the bill on time, you can improve your credit score and move up to a better credit card.

These issuers may advertise that they won’t run a hard credit check and will base their decision on other factors, such as your income and employment history.

If you have good or excellent credit, a hard inquiry shouldn’t have much of an impact, if any, on your credit score. Keep your score high by paying your bills on time, don’t use more than 30 percent of the credit available to you, and have a good mix of credit.

When checking your credit score, look for errors and dispute them with the credit bureaus. Your vigilance should pay off with a better credit score and eventually should get you better credit terms. With that, a hard credit inquiry won’t hurt so much, if at all.

The post Soft Vs. Hard Inquiry – What’s the Difference? appeared first on Better Credit Blog | Credit Help For Bad Credit.

Read more: bettercreditblog.org

Paying your bills on time, not maxing out your credit cards, and having a good track record of managing debt responsibly are some basic and obvious things that affect a credit score.

Some other financial transactions, however, don’t hurt it at all. You may even be surprised by them.

Here are seven things that don’t affect a credit score, which is a score worth improving so you’ll have access to the best loan rates and terms:

Income

Creditors and lenders obviously want you to have an income, and information about your employer may be listed on your credit report, but your actual income isn’t reported as part of a credit score.

Your income will be used to decide how much you can afford to borrow, but a high salary won’t boost your credit score and a low salary won’t hurt it. How you manage your bills is what you should be concentrating on to improve your credit score.

Overdrafts

Overdrawing your bank accounts can be costly, but they won’t hurt your credit score — as long as you clear them before they go to collections.

If your checking account remains overdrawn for weeks and the bank sends it to a collection agency, then expect your credit score to be dinged. It’s not the overdraft account that’s causing the credit score to drop, but the fact that it went to a debt collection agency.

What’s more likely to happen is with your information ending up in ChexSystems, a consumer reporting agency that collects information on closed checking and savings accounts. If you overdraw your bank accounts often, you could be flagged as a problem and have difficulty opening new accounts or writing checks.

Missed insurance payments

A credit score can be used by an insurance company to calculate your insurance premium. But your insurer won’t report your insurance premium payments — whether on time or late — to credit bureaus.

If you miss just one insurance payment, your insurance company could cancel the policy entirely or until payment is made. But it’s unlikely to send it to a collection agency.

Checking your own credit

You can check your credit report or score as much as you want without being penalized for it. Start at AnnualCreditReport.com for a free report each year from three of the major credit reporting agencies.

If a lender checks your credit score, that will likely hurt a credit score, though only a little and not for long. That’s known as a “hard inquiry” that can drop a score by five points and can stay on your credit report for two years. Too many queries in a short time could drop it a little more. New credit determines 10 percent of a FICO credit score.

Checking your own credit is known as a “soft inquiry” and has no impact on your score. Why would you want to check it? To catch errors or potential fraud before applying for a loan.

Credit counseling

If you’ve sought help from a credit counselor to help manage your credit card payments, it may show up on your credit report. It won’t, however, hurt your credit score. If you’re put on a repayment plan, that could be part of your credit report but it won’t change your score.

As long as your creditor is getting your payments on time — either through you or the credit counselor — then the fact that you’re getting credit counseling won’t hurt your score. But if the payments arrive late, then expect to see your credit score drop.

Marriage

If your partner has a low credit score, it won’t affect yours when you marry them. Credit histories aren’t merged at marriage. Each person retains their own credit score, and having joint accounts together won’t affect that.

A joint account will, however, affect each person’s credit profile on their own credit score. If the wife doesn’t pay the credit card bill on time that the couple uses together, it will hurt both of their scores. The same goes for buying a house together or filing taxes jointly and any problems in those areas.

Bank account balances

Credit scores are a reflection of how you manage debt. Checking, savings and other such bank accounts that are assets aren’t factored into a credit score.

Liabilities such as credit card balances are considered. Only your creditors actively report to the credit bureaus.

Having a rotating balance on a credit card can hurt a score, especially if you use too much of the credit available to you. The higher your credit utilization ratio — your credit card balance divided by your credit limit — the more it can drop a credit score. Keeping it below 30 percent is best.

The post 7 Surprising Things That Won’t Affect Your Credit Score appeared first on Better Credit Blog | Credit Help For Bad Credit.

Read more: bettercreditblog.org