Does rate shopping affect my Fico score?
Our answer is Yes and No. It’s a Yes if you do your rate shopping too long, meaning if you stretch it to more than a month, and No if you do focused rate shopping. Credit reporting agencies recognize that borrowers will want to look around first for the best rates available. However, rate shopping too long sends a signal to the credit reporting agency that you’re in desperate need of credit, and that your money situation may be in bad shape. Credit experts advise that you do your rate shopping for a “focused” period – meaning that you should limit it to a short time, such as two weeks to a month. The best way to go loan, mortgage or credit card rate shopping is to do your research first before you contact any lenders.
Will getting a co-signer for a loan affect my Fico score?
Yes it will, and in a positive way if your co-signer has a good credit score. A co-signer with a good credit standing will not only increase your chances of getting the loan approved . His/her credit score will help to improve your own credit score because that will tell the credit reporting agencies that if you fail to pay your loan, the burden will fall on your co-signer who is likely to be able to pay. Make sure, however, that you choose a co-signer with an already good Fico score; otherwise you may not only be denied the loan, your Fico score may plummet because of your co-signer’s bad credit standing.
Will piggybacking on a relative’s account affect my Fico score?
Yes, it will. If you are a co-owner of a bank account or credit card, for example, and the person you piggybacked with has a good Fico score, that will tend to pull your own Fico score up. The real owner of the account makes you an “authorized user,” and therefore gives you the right to use the account. As an authorized user, your name appears on that account and the information is added to your credit report. If the real owner has a good credit score and the account is current and up-to-date, that will positively affect your Fico score.
If I ask for an additional credit line, will that affect my Fico score?
Applying for additional credit will always have the effect of lowering your Fico score. If you have a good Fico score, your score will go down by a few points, but if your credit score is already low, it may decrease even further. Apply for additional credit only if you need it; and do your research first to ensure that it is the best option available to you.
Will consolidating small loans or credit balances increase my Fico score?
No, it won’t. When you transfer your debt balance from one credit card to another or consolidate several small loans into one big one, you are decreasing the amount of credit available to you and increasing your debt utilization ratio on that one loan or credit card. A high debt utilization ratio will lower your credit score. Credit experts do not generally advise this, unless by consolidating your loan you would be able to get a better interest rate and payment term. Before you decide to consolidate your debts, study the rates and terms carefully and see whether in the long run you would be paying a bigger interest or not. Online score simulators can help by allowing you to compute the rates and see if you would be saving on interest expense, taxes, and on your total cost.
Will checking my credit report affect my Fico score?
No it won’t. Credit agencies realize that you need to check your credit report and score in order to make sure it is correct, and so that you can improve it. Checking your own credit report is classified as a “soft” inquiry, and is not counted in the computation of your Fico score. It will show up when you request for your credit report, but the information will not be included in copies of your credit report sent to potential lenders.
I have several credit cards. Will closing some of them help improve my Fico score?
No it won’t, and on the contrary it will actually hurt your Fico score. Closing lines of credit will affect you in three ways:
• Any late payments associated with the account you close will not disappear from your credit report just because you closed it,
• Closing accounts will make your credit history seem shorter especially if you close the older accounts, and
• It will decrease the total credit available to you and thus increase your debt utilization ratio.
The debt utilization ratio is the amount of your debts in relation to your total available credit. If your credit limit decreases as a result of closing your credit lines, the amount of debt you currently have will seem bigger in relation to the available credit. Even if you don’t use your credit cards, it is not advisable to close them – especially when you intend to apply for a loan – because doing so will cause your Fico score to zoom down and your loan application may be denied.
Comments
Danny March 12, 2009 10:12:44 PM 10:12 PM This is a very good post! Until today I was unaware of this rate shopping. I am happy that I came across your blog now I can be more clear about credit.
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