Is Your Credit Score Dropping?
A very common, yet not entirely obvious cause, for a score to drop is an increased utilization ratio. ...
An increased what ratio? Yes, this is credit scoring lingo, but it basically measures how much of your credit are you using in relation to your total available credit.
For example, if you had 2 credit cards each with a $1,000 credit limit ($2,000 available credit) and you charged $500 on each ($1,000 balance), you'd have a 50% credit utilization ratio ($1,000 / $2,000 = 50%). In general, the lower this ratio, the better for your score. Therefore, if you've been using more of your available credit lately, that could account for a drop in your FICO score. For a more detailed description of the credit utilization ratio. The golden rule is to keep your credit utilization down at at least 30%!
Applying for new credit accounts, such as department store cards or lines of credit can also account for FICO score drop. Each time you apply for new credit, an "inquiry" is added to your credit report. Each of these inquiries can have a small impact on your FICO score, and several inquiries in a short time frame will have a greater impact on your score than a single inquiry. So, if you've recently been seeking new credit, this also may have caused your FICO score to drop. Inquiries only account for up to 10% of your FICO score and there are some exceptions.
First off, don't sweat this too much; applying for new credit only accounts for about 10% of your FICO score, so the impact is relatively light. So exactly how much applying for new credit affects you depends on your overall credit profile and what else is already on your credit report. For example, applying for new credit can have a greater impact on your FICO score if you only have a few accounts or a short credit history.
Home & Auto Loans
Rate shopping for a home or car is a smart practice, so your FICO score won't penalize you for doing this. As you're rate shopping, multiple lenders may request your credit report to check your credit. They are aware this goes on, so your FICO score doesn't even consider any mortgage or auto inquiries made in the 30 days prior to calculating the score. So, do your homework ahead of time, decide on the companies to get quotes from, and try to do all the rate shopping and get the loan within 30 days. Not only will the rates be easier to compare when the quotes are closer together, but it will have no immediate impact to your FICO score. Now if you have bad credit and are shopping for a home loan or a car loan, just don't!! First call one our experts and we can help you figure out what your best options are