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What are the factors that affect your credit score?

Author: Glen Sley
by Glen Sley
Posted: Oct 07, 2020

This is an interesting question, as it’s important to have a thorough understanding of the factors that affect your credit score before you start applying for credit cards. Any time you apply for a new line of credit, whether it’s a mortgage, car loan or credit card, the company will pull your credit report you can also try and try to calculate credit score.

These "hard inquiries" usually ding your credit score by about five points, and overall, your new credit history accounts for about 10% of your FICO score. These types of credit pull differ from "soft inquiries," which might happen when you open a new bank account or get your credit screened to sign a rental agreement. In a soft inquiry, the other party looks at your credit report but the inquiry doesn’t then affect your credit score.

Does getting denied for a credit card hurt your credit score?

In most cases, you’ll receive a hard credit pull whether you’re approved for a card or rejected, although American Express has been known not to hard pull existing customers when it declines them for a new card.

In this sense, the negative impact of applying for a new credit card is the same whether you get approved or rejected. Obviously, if you get approved you get a new account and an increased credit limit which can help boost your credit score long term (not to mention get you a nice welcome bonus), but there aren’t any uniquely negative effects of being rejected.

Study each card issuer’s application rules

While you shouldn’t worry too much if your application gets rejected, you shouldn’t just apply sporadically without understanding the unique rules of each different card issuer. Constantin is talking specifically about his Chase 5/24 status and applying for Chase cards, since the issuer will automatically reject you if you’ve opened five or more credit cards in the last 24 months (except certain business credit cards). Even if you don’t know your Chase 5/24 status off the top of your head, it’s worth taking some time to sit down and figure it out instead of just applying randomly and hoping for the best.

The same goes for other issuers such as Amex, which limits you to only get the welcome offer on each of its credit cards once per lifetime. You also have to be careful, as some issuers are especially sensitive to recent inquiries. Even if they don’t have any formal rules like Chase’s 5/24, Citi and Capital One have both been known to reject applicants with otherwise excellent credit for having too many recent inquiries on their credit report. And Bank of America has its own 2/3/4 rule, where you can only get approved for two new cards in a 30-day period, three new cards in a 12-month period, and four new cards in a 24-month period.

Reasons why you may get denied

Each issuer has its own set of criteria for who they approve and deny for credit cards. While many of the factors will overlap across credit cards (every issuer will look at your credit score, for example), many have other constantly changing requirements before they will approve someone for a new line of credit. During times of economic downturn (such as right now), those criteria frequently become more stringent.

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Author: Glen Sley

Glen Sley

Member since: Sep 21, 2020
Published articles: 1

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