What percentage of a credit score is affected by new credit?

The New Credit Inquiry’s Impact on Your Credit Score

New credit applications, a common experience for many, can have a noticeable, though temporary, impact on your creditworthiness, reflected in your FICO® score. Understanding the extent of this effect is crucial for responsible financial management.

While the precise impact on your credit score can vary based on individual circumstances, a general rule of thumb is that new credit inquiries can affect your score by 10%. This isn’t a devastating blow, but it’s significant enough to warrant careful consideration when applying for new lines of credit.

Importantly, this 10% effect isn’t permanent. The inquiries themselves are visible on your credit report for a period of two years. However, FICO® scoring models are designed to consider only the most recent information. This means that after two years, the impact of those inquiries will effectively vanish from your credit score calculation.

The key takeaway here is not to avoid all new credit inquiries. Instead, it’s crucial to assess your borrowing needs strategically. If you’re anticipating applying for a new loan or credit card, consider timing your applications to minimize the potential impact on your score. If you need multiple lines of credit, space them out over time.

The increasing prevalence of access to credit and the frequent applications that accompany it underscore the importance of responsible credit management. Understanding the short-term impact of new credit inquiries empowers you to make informed financial choices, maximizing your chances of achieving optimal credit scores and securing advantageous loan terms in the future.