So, where's the break-even point?..

[Anonymous]

This site has been helpful to me, as for many others, and is filled with direct, practical information regarding credit-score matters. But, I trust, virtually no one really wants or needs his/her credit score to top out simply for its own sake -- we want the score to allow us to obtain the credit we want when we want/need it.

However, obtaining credit virtually always lowers one's scores. What/when is the break-even point? How long does obtaining credit nick my score?

For example, I took out a mortgage and car loan 12-18 months ago, shortly after the successful discharge of a Chapter 13 bankruptcy. Since, I've obtained a couple of credit cards, but otherwise hoarded my inquiries, knowing that I'd seek a motorcycle loan eventually. Voila, Honda Finance approved me earlier this month, and I rode the bike home Monday.

So, how long will it take for my credit score to recover to where it started from before the inquiry and new account via American Honda? I can and will pay it successfully, barring unforeseen financial/health catastrophe. If I do so, when will my score 're-balance', so to speak: equal what it was the day Honda pulled my credit report/score? And, is it the same for a mortgage, credit card, or other form of credit?

[JayRizzo]

The way I understand it... your report will always take a hit for inquiries or even when a new account is open because it starts with a balance due that affects your available credit to total balance debt ratio.  After you begin to pay it around 6 months, then you've established a good, steady paying habit which will make your score increase.  Soon, it will surpass your prior score and go even higher.  Others may have more details on a timeline for you.

[JM-AM]

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@JayRizzo wrote:

The way I understand it... your report will always take a hit for inquiries or even when a new account is open because it starts with a balance due that affects your available credit to total balance debt ratio.  After you begin to pay it around 6 months, then you've established a good, steady paying habit which will make your score increase.  Soon, it will surpass your prior score and go even higher.  Others may have more details on a timeline for you.

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This is untrue in all aspects. Not every CR will take a hit for an INQ or a new account. Also there is no balance on an account when you receive it unless it has fee's for obtaining the card.

Usually you begin to retain your scores back in about 6 months to a year and YMMV depending on your credit profile.

[JayRizzo]

Well, I was reading the post where they purchased a motorcycle from American Honda, so I'm thinking it's just like purchasing a car -- it starts with a balance that you're paying down.  This is not revolving, but installment credit.

[JM-AM]

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@JayRizzo wrote:

Well, I was reading the post where they purchased a motorcycle from American Honda, so I'm thinking it's just like purchasing a car -- it starts with a balance that you're paying down.  This is not revolving, but installment credit.

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I stand corrected with Installment loan as it does have a balance. Thank you JayRizzo for correcting me.

[RobertEG]

New credit has both positive and negative impacts, when taken together, could lead to an immediate drop in score, no drop, or even a gain.

Most new credit begins with an inquiry.  Inquiries are only 10% of total score.  Depending upon your scoring bracket, or bucket, the scoring impact could be minimal, or up to maybe 10 pts.

If the new credit is established, it will add a new account to your CR, which will initially have a zero age of account, and thus lower your average length of credit history,

But, again, length of credit history is only 15% of overall FICO scoring.  And AAoA averages are very slow to have significant FICO impact.

However, these negatives may be offset by gains in util of credit, whiich scores at 30% of total score, which is as much or more than the combined inpact of both inquiries and length of credit history.  When the new account is reported, it may improve your mix of credit, and move you from a "thin" to a "thick" credit file. Mix of credit is 10% of FICO scoring, and you wont harm your credit mix by the new account.

The new CC will have a 0% util when first established, and not yet used.  That helps.  Depending upon the $ amount of the new CC added credit limit, the higher the added new CL is on the new account, the more it will improve your overall % util, 

What is the CL on the new account?

So it is not possible to make any generalizations on the initial impact of the addition of a new TL, or how long it may take to "break even." It depends on many factors other than just the new inq and reduction of AAoA.

[marty56]

There is no  break-even point.  The point is not to be FICO score poor in that we build our credit so if we need to use it later, we can get the loan and even best rates.

For example, about a year and a halh ago I was able to refi my mortgage from 7.25% to 4.0%, inpart due to my improved credit score.  Sure I took a score hit but I also will save tens of thousands of dollars in interest.