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AM | Will opening up a new credit account lower my credit score?? |
I'm working on improving my credit score since I filed bankruptcy two years ago. I was told to open up a couple of credit cards. I just opened up a Lowe's credit card a week ago. As soon as I told that to my loan officer, he said that that could potentially lower my credit score initially, but I've read that it could actually help my credit score which is what I'm most concerned with and the only reason I applied for this card. I have a Capital One account that I have been paying on for six months. My biggest concern is that I want to refinance my house and my loan officer advised I try to get my score up a bit so that I could qualify for a better interest rate. I'm currently at 600 and the interest rate quoted to me was a bit too high, so I'd rather improve my score before I proceed with the refinance. Please advise. Thanks. |
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$m¤¤v¥ £¤¢¤
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Ok, here's the deal. Your loan officer's right about that, but I'll explain something. Let me give you a breakdown of what makes up your score first to give you a better idea of what I'm talking about:
1. 35% payment history
2. 30% total debt vs. available credit
3. 15% length of time establishing credit (average age of accounts)
4. 10% types of credit established
5. 10% inquiries and new accounts
Anytime that you apply for credit regardless of whether you're approved or not, it creates a "hard inquiry" that does in fact lower your score several points and if you're approved the account usually takes a minimum of 6 months for it to reflect on your report and raise your score again, hence how you were able to get the Lowe's card after paying on the Capital One for 6 months.
As for your Capital One card,that also plays a factor on your score. Reason why is that it reports your current balance as your limit, and doesn't reveal the true credit limit on your report. Here's the catch 22: The only way for it to report your credit line is to use to the max. You don't want to do that, especially if you're trying to refinance a house. You should keep the balance low, if not at 0 and open up a secured credit card. This way, although you would still get an inquiry for applying, you improve your chances of getting approved. Reason I say get a secured card is that although you have to put a security deposit upfront usually linked to a savings account to get the amount as the credit limit, you can also raise the limit by adding to the deposit. The ratio of the debt that you owe versus the available credit is key, being that it counts 30% of your score. The only credit line that would show would be your Lowe's card, and that's going to take a month or two for that to report. You'll need another open trade line with a higher limit to offset what Captial One's not disclosing about your available credit. Keep in mind that usually after a year of paying on time and keeping the balance low or if not paid off, you get the deposit back. And the higher you boost your limit, the better becuase the higher limit will help the debt to available credit ratio which will in turn eventually boost your score. |
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Brian G
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The loan officer is correct that it will initially take a few points off your score. As you use the card and make on time payments, the increase is much more than the initial hit. |
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kielib
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Initially lowers if opening a lot of credit cards but use them and pay off balances by end of month. You want to have regular payments over a period of time and it will help your scores.
Good luck |
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Millionster.com
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It will lower your score yes, but depending on whether or not you're increasing your debt to credit ratio in the process the net result might actually be that your credit score increases.
When you're trying to build a solid credit score it's important to get a comprehensive view of what is actually effecting it... it's not just inquiries, but many other things as well..
Your Credit Score (also known as your MyFico score) is calculated with the following breakdown:
35% - Payment History
30% - Credit to Debt Ratio
15% - Credit History
10% - New Credit
10% - Credit Types in Use
You're right that 600 isnt the best score. I'm currently getting ready to buy a new home so I've been using a credit score tracker to watch and monitor any changes on my credit report. It's pretty cool because it sends me alerts to my phone. The other day I got an alert when my score was decreased by one haha. Pretty helpful. I went to check it out asap.
Anyway I write a lot about credit and money but here's one article from my blog that my interest you... :
10-Ways to Boost Your MyFico Score
http://millionster.com/articles/debt/increase-fico-credit-score/ |
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mo2345
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Find out which bureaus the lowes card reports to, and which bureau your loan officer is using. if they arent a match, it has no effect on your loan whatsoever. But as for your credit itself, you shouldnt have too many credit cards, but two are fine. Make sure you never spend more than around 33% of the credit limit, as the closest your are to the limit is reported monthly and can hurt/help your credit. Also, the more you pay each month the faster your score goes up, so try to pay the whole balance each month, and on time. But going back to your question, the reason he said that is not really because it will hurt your credit, which it will do for the first month, but because whatever loan you are approved/preapproved for is for the credit you have at that exact time, any major changes to your credit might make them go back on the loan. |
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mmddf
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Initially it will lower, but it has the potential to increase. You do not want to charge up more than half of your available limit. Your score is based on how much available credit you have. If your limit is 500, keep it under 250, or don't use it at all. Also secured loans are a great way to go. You are using your own money, to whatever amount you want and it is secured to your bank suffix, say you put down 300, then you borrow and make payments off of that, when you are done with the loan and it is paid, your money goes back to your account. Good luck |
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dulcrayon
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the reason having another CC will lower your score is that it provides you with the ability to owe more money-you have the potential to become more in debt, because the credit line is there waiting for you to spend the money. it can help you, but only if you have had the CC for a period of time and have shown the ability to not abuse the credit. so, bottom line, getting a new card will lower your score, and paying on a card for six months does not establish a payment history. keep going like you are. good luck |
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surybob
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taking another card will only help you to breath comfortably on a temp0rary way.
your repaying capacity only will improve your rating. |
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Bella
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As long as you make your payments on time and don't use 50% or more of your credit line...you should be fine. I think your score will lower if you have several inquiries on your credit report. Everyone is allowed atleast 2 free inquiries a year....any after that will effect your credit score. Be careful and be wise....learn from your mistakes. Also, don't take out too many credit cards becuase not only does it affect your credit when they check it but the debt to income or debt to ratio may be off and may look like your hurting for money on your credit report. Good luck!
P.S. Also, mortgage companies are allowed to check your credit as many times as possible and won't hurt your credit... |
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Hedley Le Marr
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I think that providing that you don't have any late payments on your credit cards and pay off at least the mimimum amount required each time, then your credit score will improve. Initially, it could be seen that you're potentially getting yourself into more debt, but if you stick to "the rules" you should be fine. Check your credit score in 6 months or so and good luck with the house |
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