Improving Your Credit Score: Be Careful When Opening New Accounts.

Through this article you will be provided with some basic information about how you can go about improving your credit score in this day and age. Specifically, you will be presented with information as to why you should not open new accounts rapidly, why you should not open a lot of credit accounts, and why you should not open more credit accounts than you need.

Statistics and Consumer Use of Credit

The majority of consumers say they use credit responsibly but statistics show quite differently. More than twenty five percent of all FICO scores are below 650, and is generally considered the lowest cutoff for getting the good rates.

Your Credit Score and Credit Report Inquiries

To understand how a credit score is determined you need to understand how credit inquiries affect your credit score. Hard inquiries are generated when you apply for credit and can decrease your score. Usually it won’t cause a tremendous drop in your score but it will be noticeable but if you are trying to get credit from a variety of lenders and each check your credit over a short period of time, then your rating can drop substantially. This is why it is important not to be opening up to many new accounts within a short period of time.

Another type of inquiry is known as a soft inquiry and does not affect your score at all. This is the type of inquiry that is sought for marketing purposes by potential creditors.
Depending on the person, inquiries can have a more dramatic effect than with another. For example, if a person has a short credit history and has just a few accounts or stimulates many hard inquiries in a short period of time, it can reduce their score substantially. It quite often shows a person that is racking up credit with intentions of filing bankruptcy and is not looked upon as credit worthy. With others one hard credit inquiry will lower their score by less than five points.

Applying for a New Line of Credit: Understand the Effects

Overall, applying for a new line of credit will temporarily reduce most people’s credit scores because statistically they are a riskier borrower when they open new accounts. The score will although rebound back after a few months if the account is paid on time.

Since there are many variables in figuring a credit score, a borrower that has only one form of credit such as a student loan may find that their score actually goes up when they take out a new form of credit. Although it is not advised that someone takes out credit just to improve their credit score, someone in this situation will find that it does improve their credit score. In the end, you need to do your homework and understand your own situation well.