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Follow-up to earlier posts

I got the following questions from sm in response to Part V of the Intro to Credit Gaming series, which covered credit inquiries and new credit:

Do you know a general rule of thumb for how long one should wait between applying for credit cards? How many credit applications is OK per year? Also, does pulling your own FICO score show up as a credit inquiry?

Sorry it took so long to reply -- somehow this comment slipped through the cracks (I wish that Blogger had a "new comment" notification!). As a rule of thumb, I typically don't apply for new credit within 6 months of receiving other new credit. However, this rule was made to be broken. I would try to wait 6 months between credit cards. However, mortgage and auto loans are handled differently. (please use that link if you want to use MyFICO to buy credit scores) has a fairly comprehensive page on credit inquiries. In particular,

For many people, one additional credit inquiry (voluntary and initiated by an application for credit) may not affect their FICO score at all. For others, one additional inquiry would take less than 5 points off their FICO score.

Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.

So for most people, inquiries will have an extremely minimal effect on your credit score. As long as you have a good credit history and lots of credit to begin with, inquiries will barely affect your score. If you are just starting out and have no history or established credit, your score will be affected more. This also answers another question: try not to have more than 4 or 5 inquiries in a year if at all possible. Inquiries stay on your report for 2 years, but they only affect your score for 1 year. This is why I recommend that young people starting out with their credit limit their credit card applications to one every 6 months. Of course, if you don't have a mortgage application or other big credit need coming up within the next 12 months, you can choose to go wild with the credit apps and everything will disappear from your score when those 12 months are up.

This connects to a discussion between golbguru and me in the comments of an entry at The Tao of Making Money, which I also wanted to touch on in this post. A little further down on the page is this:

Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though youre only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

Ok, that's a big chunk of text. Let's look at exactly what it says, because although it's all connected, there are two main points here.

1) While you're shopping for an auto loan or mortgage: None of your recent (within 30 days) auto loan or mortgage inquiries will show impact your credit score. You can go to 4 different lenders, each a week apart, and your inquiry with the first lender will not affect the score that the 4th lender sees. This is plenty of time to find a mortgage or auto loan. Note that this only pertains to these particular kinds of loans. Recent credit-card inquiries will still show up and affect your score.

2) After you're done shopping for an auto loan or mortgage: All auto-loan or mortgage inquiries within a 14- or 45-day span (depending on what scoring method the lender uses) will be consolidated into 1 inquiry for the purpose of your credit score. So you could shop around at 20 different lenders for your mortgage, and have all of them pull your credit score with a "hard" inquiry, and it will show up as 1 inquiry on your score after you're done shopping. Obviously you should try to limit your shopping periods to 14 days, because you have no way of knowing which method any future lender will use.

And finally, to answer sm's last question, no, checking your own credit score does not result in a "hard" inquiry that will show up on your credit score.

And finally-finally, I wanted to clarify about the Washington Mutual credit card that I use to keep track of my credit score. It is not an annual free trial or anything like that. As long as I have the card, I will be able to log in to the site and check my credit score. I assume that this is actually a near-costless benefit for WaMu because, as a lender with which I have an open account, they are checking my credit score for their internal purposes on a regular basis anyway. All that they have to do is take that score (which they're already pulling) and put it up on the website. It is accessed through the account management website, as just another part of the site. There's the typical "View Statement", "Pay Bill", etc. and then there's the "Credit Profile" page. If anybody wants me to create a post with screenshots, etc. then I will be happy to.


Stephanie said...

Actually, you can set up new comment notification on Blogger: under Settings, Comments, at the very bottom, "Comment Notification Address." =)

I'm interested in that WaMu card of yours... I'm thinking of getting another card soon. It updates monthly, correct?

Gaming the Credit System said...

Yes, the credit score updates monthly.

I guess I probably saw the comment thing a while ago, but I didn't want to get e-mails. I guess it's the only choice. Thanks for bringing it back to my attention :) I've enabled it now.