Effect of credit report inquiries for credit card applications on credit scores
False belief about the magnitude of changes in a credit score due to inquiries for credit card applications
| By Greg Fisher, creditscoring.com
"An earlier version incorrectly stated that a credit score can help a person land, or lose out on, a job." - a correction on Rupert Murdoch's Wall Street Journal website, wsj.com, following an enquiry by creditscoring.com
An item at Rupert Murdoch's foxnews.com falsely states, "There will be a temporary dip of two to five points in your credit score (your score is on a scale of 300-850) per credit card application, but as long as you remain aware of the five main factors that determine your score and keep them strong, you can absolutely open several credit cards a year without affecting your overall credit worthiness."
See Myth #1 on the creditscoring.com list.
A similar idea is also #1 on a real, live, legitimate expert's list of credit score myths. The expert, Tom Quinn, stated: "Myth #1: Every inquiry for credit costs 5 points... Fact: There is no fixed set number of points that an inquiry will cost. Generally speaking, inquires have a relatively minor contribution to the overall score."
On the official website of the official credit score company of the FICO score, an official statement in that regard is, officially, "For many people, one additional credit inquiry (voluntary and initiated by an application for credit) may not affect their FICO score at all."
Here is some of an exchange in social media.
@creditscoring @FoxNewsTravel @myfico that article just states if you rate shop for a mortgage within a short period it'll lump as one
— The Points Guy (@thepointsguy) September 19, 2013
.@thepointsguy Thank you. So I'm clear on your sources for @21stCenturyF0X, are they sav825 & jrhenry11, just some dudes on a message board?
— Greg Fisher (@creditscoring) September 19, 2013
Subsequently, the Fox author takes to his own log, writes about inquiries, and says (in his "wedding attire"): "So, actually, the more accounts you have that you're paying on time and keeping paid off, the more your score goes up. Someone on Twitter, this week, tried to argue with me that opening credit cards doesn't hurt your credit, at all, just because they couldn't find information detailing that. It absolutely does ding your credit two to five points when you open up a new credit account."
Zounds. There is a lot going on there.
First, the sheer number of accounts (paid on-time, paid-off or otherwise) is, indeed, a factor. As Fair Isaac (the FICO score company) states, you can have "Too many bank/national revolving accounts." However, last month, the Plain Dealer (a newspaper in Cleveland) reported, "As for credit accounts you don't use, Jeff Richardson of VantageScore and [Anthony] Sprauve of FICO say their respective scoring formulas currently do not penalize people for having 'too many' cards."
Yikes. That's confusing.
Second, this is merely about inquiries, not opening credit cards. Say you're turned down. That means that there is no additional trade line on your credit report, and that, itself, would have no effect on your credit score (because it never happened).
But the inquiry, alone—regardless of getting the account or not—could have an effect on the score. And, as another expert, John Ulzheimer states, could is the operative word.
"Lenders and credit scoring systems can see hard inquiries and they could have an impact on your credit scores. Having said that, it's important to underscore 'could' and ensure that it's not misinterpreted as meaning 'will', as FICO scores consciously ignore most hard inquiries."
Third, there is "information detailing" at least one aspect of inquiries (see the official statement on the official website quoted above).
In the end, these types of things just come down to mathematics and mathematics logic. For instance, first, the Fox author says, "two to five points," then he says (calling it a fact) about "2-5 points."
About? Could that mean one point? That is a good question for the experts, or for anybody with evidence or who knows of a statement about that.
Now, here is a puzzle. The Fox Guy writes
"That said, I actually got into a discussion on Twitter with someone earlier this week about whether applying for a lot of credit cards lowers your score – they were saying it does not, while the fact of the matter is that every credit card application you make dings your score by about 2-5 points. Now, that's out of a total of 850 possible points, so it's not a huge number, but it's still something to keep in mind."
So, if 5 out of 850 points is 0.588% (5 divided by 850), then how is it that 5 points is 0.907% of the points on the FICO score scale?