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New CC and effect on credit score: dilemma

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Anonymous
Not applicable

New CC and effect on credit score: dilemma

Hi All,

 

I just pulled my EQ score for the first time (from myFICO) and I got a surprising 743...

 

My credit history is pretty short: car loan $3K (opened 02/08 - paid off 02/09), secured loan $1K (opened 04/08 - paid off 04/09), CC from credit union with $1K CL (opened 10/08). I always pay the balance in full, never been late with payments, average CC utilization 4%...I think I followed all the tricks and built a good credit in almost 2 years.

 

Now the dilemma: I am planning to buy a house in 1 year and my goal is to reach a 760+ score to qualify for the best mortgage rate. I expect a hard inquiry from a new landlord within the next month (that's inevitable). With that being said, am I better off leaving my credit portfolio as is, or apply for a new CC in order to "speed up" the score buildup? I was considering also a CLI on the current CC but, as far as I understand, that facilitates the goal of a low CC utilization (which in my case is already good), rather than increasing the score due to a higher total credit line.

 

I guess that if I go for a new CC, CLI or both, the score will be hit in the short term due to the hard inquiry(ies) plus reduced AAoA, but eventually it will pay off in the medium/long term. But how long would that be? Soon enough to get to 760+ in 1 year? What is your friendly advise? Thanks!!!

Message 1 of 7
6 REPLIES 6
marty56
Super Contributor

Re: New CC and effect on credit score: dilemma

Welcome to the forum.  IMHO adding any new credit to your profile will do more harm than good.  Being added as an AU on an old, perfect CC account could help but I am not a big fan of that.  I think your sore would probably go up in 1 year due to aging.

 

I refied my home through my CU and go their best rate and my EX score was 754 at the time, so you might get the best rates with your current score.

1/25/2021: FICO 850 EQ 848 TU 847 EX
Message 2 of 7
RobertEG
Legendary Contributor

Re: New CC and effect on credit score: dilemma

My opinion, for what it is worth, and that I probably would not app for a new CC credit now.  My advice might be different if you werent applying for a mortgage loan in the next year, but you say you are.

You have secured credit three times in the last two years.

Mortgage lendors dont normally like to see recent application for new credit prior to application for a major loan, such as a mortgage.

You low creidit history and low AAoA, while showing spotless history for two years, does not estabish payment history over an extended period.

Age of accounts does not help until you get approx. three years of account history for them to look at.

So are stilll probably within a thin file scoring bucket, whick still puts you in a higer risk scoring bucket. 

Getting a new card might help your credit mix, but you have no active installment loan util, so addong more revolving credit with no installment accounts probably wont help much there.

If you are keeping your current % util low, you dont need more credit just to feed the FICO machine.

YOu will take a hit both on the new inquiry, and on AAoA.  Adding the additional CL wont help much if your % util is now very low.  FICO does not score on your CL, only on your % util.

I think what you have done to date is excellent, and has put you with a current score of 743.  So you have already set the foundtion for rebuilding.  You are past the traditional rebuilding stage now.  I would just focus on matitaining what you now have.

Message Edited by RobertEG on 01-28-2010 08:12 PM
Message 3 of 7
Anonymous
Not applicable

Re: New CC and effect on credit score: dilemma

Thanks a lot for your replies!!!

Probably I should have been more specific in explaining my goal. Anyway, I am planning to apply for a mortgage not earlier than 12 months and not later than 24 months (unless something forces me to delay it further). Tha's why the new CC is a "now or never" decision. Does this further detail drive you to a different suggestion?

The credit score looks good now, and leaving the credit situation as is (except the inquiry for the incoming lease) will probably bring me up another 15-20 (?) points in a year. But how do mortgage lenders see people with a very good score (and decent salaries), but build up upon a revolving balance of only $40/month?

I guess I am kind of discussing the FICO formulas, rather that celebrating my current score. Besides that, I want to avoid any unplesant surprise when I go shopping for the mortage (i.e. "Sorry sir, your score is great, but everybody can pay $40/month. You are about to pay $1500/month now, please come back later for a better rate"). What do you think? Thanks!

 

 

       

Message 4 of 7
marty56
Super Contributor

Re: New CC and effect on credit score: dilemma

I still would not do it now unless there was a great need to do so (major purchase, medical).

1/25/2021: FICO 850 EQ 848 TU 847 EX
Message 5 of 7
bigtim
Frequent Contributor

Re: New CC and effect on credit score: dilemma


@Anonymous wrote:

Hi All,

 

I just pulled my EQ score for the first time (from myFICO) and I got a surprising 743...

 


Check the FICO simulator in Scorewatch, this will help give you an idea on what will happen to your score for immediate purposes. Marty has a good idea with the AU account - you can always delete it later. Also, Robert mentions having a current installment loan, which will also probably help in the long run and your score should be over 760, at least within 12-24 mos. I think you would be OK getting a new card if you wanted, by the time you apply for your mortgage, your points should be up there again and PROBABLY over 760.

---------------------------------------------------------------
Recent Cards:
12/2012 - Discover (ICL 3,375 CLI to 5,375 05/2014)
12/2013 - Chase Freedom (ICL 3,500 ACLI to 4,500 07/2014)
03/2012 - Gander Mountain MC (WFNNB) 7,000 CL
04/2012 - Ace Rewards Visa (US Bank) 12,000 CL
Back to gardening for a year or two
Message 6 of 7
Anonymous
Not applicable

Re: New CC and effect on credit score: dilemma

Hi lukebs, 

 

You refer to “increasing the score due to a higher total credit line” 

 

There is no FICO score increase for a higher total credit line (excepting its potential effect on utilization – which is a different animal). 

 

When I pull my credit reports on CCT, I see the note that having low credit limits is affecting my score negatively.  But CCT does not provide FICO scores, and their advice is not FICO score friendly. 

 

The only place I see mention of “lower credit limits” affecting scores is on FAKO reports (and I see it on every one I pull), I have yet to see this on FICO reports.  And FICO does not have a “code” for low credit limits (or high credit limits, for that matter). 

 

It’s best to ignore FAKO advice; it’s often detrimental to your FICO score, to get a FICO impact, stick with the FICO advice given here at myfico.com. 

 

FICO does care, however, that you have at least one bank/national cc account reporting.  Because your current CC is with a CU, you have the potential to gain points by opening a bank/national cc revolving account.  (This can be a credit card, overdraft protection, LOC).  Hope that’s helpful to you as you move forward. 

 

I also have to note that we had no trouble getting a lovely mortgage with several new inquiries and new accounts (less than 30 days old actually, we were planning on app’ing for a mortgage later – but were surprised to find we were ready earlier than we thought). 

 

Consider getting that bank card – you will fill a void in your “credit profile” that does matter at mortgage time (at least our mortgage lender was pretty keen on making sure we had one –and FICO scores for it).  You are currently getting a FICO score hit for not having one (FICO code #3 - Too Few Banking Accounts).  Both DH and I saw our points jump when adding this type of card - in spite of the new inquiry, new account, and AA of A hits.  (DH jumped 29 points, I jumped 20 points – YMMV). 

 

Good luck!

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