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My Fifth Mistake: I started applying for credit too quickly

Many people are under the impression that once they fix (or remove) all of the bad records from their credit report (such as charge offs and late payments), they will have good credit. While ridding oneself of negative credit report records may relieve a great burden, the truth is, until you have gained sincere, long-lasting positive accounts on your credit report, your credit will never be “good” –it will simply be static and hover around 620 – 650. Therefore, an important step in credit repair is building NEW credit.

My mistake, of course, was that I went a little mad and applied for too much credit, too quickly. In my previous article regarding how credit inquiries can lower your credit score, I illustrated how this can damage not only your current credit score, but also your ability to obtain new credit. I also mentioned that it’s a good idea to apply for new credit in “bursts”. While this is absolutely true in order to minimize lowering your credit score due to too many inquires (inquires within a 2-week period are counted as one), it does little good if you already have a sour credit. This is true because you have to slowly build the creditor’s confidence.

Applying for multiple credit accounts right after you have cleaned up your credit report will do little good because creditors want to see previous positive accounts. Therefore, you must begin with one credit account (such as a credit card for people with bad credit), keep it for 6 months to get some positive history, and then apply for more credit. This is how to successfully build positive credit history and ultimately increase your credit score.

This may seem ridiculously obvious to you, but trust me, once your credit score begins to improve, you will be presented with an unfathomable urge to apply for more credit. This will hurt you in the end. Get a secured credit card, keep it for 6 months, and then start applying for a “real” credit card.

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How Credit Inquiries Can Affect Your Credit Score

In the following article I will explain how credit report inquiries can modestly lower your credit score. Depending on the type of inquiry, your score can lower 3 – 10 points -even more with multiple inquiries. While this should not be the pinnacle of your credit worries, it is helpful information to keep in mind.

What is an inquiry?

As the name suggests, a credit inquiry is the nomenclature used when anyone pulls your credit report for review. There are two main types of inquiries: inquiries that are only seen by you, and inquiries that are seen by everyone who reviews your credit report. Only the latter affects your credit score.

While multiple inquiries make a bigger impact on your credit score, multiple inquiries within the same 2-week period are usually only counted as one inquiry. The credit bureaus started doing this after customers started to complain that their scores were dropping 20 – 30 points in one weekend of car shopping (often when you are seeking financing for a new car, dealerships will make 20+ inquiries).

This brings forth an important tip: when you are seeking credit (filling out credit card applications, for example), do it in “bursts”. If you are going to apply for 5 credit cards, minimize the credit score impact by doing it all on the same day and then waiting a couple of months (if you have no success the first time) to do it again. Multiple credit inquiries indicates to credit bureaus that you are desperately in need of credit because you cannot honor your current obligations. This is why they lower your score.

Types of inquiries that do not affect your score

1. Pulling your own credit report is not seen by anyone but you.
2. Inquiries for pre-approval offers such as those “You’ve been pre-approved!” letters you get in the mail.
3. SOME credit inquiries made by debt collectors.

Types of inquiries that do affect your score

1. Inquiries made by creditors when you apply for credit.
2. Inquiries made by cell phone companies when you apply for a cellphone.
3. Car dealerships inquiries.
4. Other misc. credit applications (such as a home loan).

Hopefully this gives you a better idea of how inquires work. I know I did not list every type of inquiry that can affect your credit score. My attempt is to simply give you a list in which will provide a general rule of thumb to go from.

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