Questions about the FICO score?

[Anonymous]

Hello,

Next year August, I plan on getting a personal loan, and an auto loan at the same time. Do those inquiries immediately change a FICO score? For example, let's say I get a 10K loan, and then apply for an auto loan within 48 hours, will they see each other's inquiry effectively giving me a higher APR?

Also how long does it take for a FICO score to update? I plan on paying all my debt off 1-2 months before doing the above, will they give the FICO score and my 3 major lenders enough time to update the scores?

Thank you!

[Anonymous]

Inquiries are usually instant, meaning that right when they happen they can then be seen by anyone pulling your report after that moment in time.  If the lender that pulls you for your personal loan uses the same bureau that the auto loan company uses, whoever pulls second will see the first inquiry.  This is not a huge deal though, so don't sweat that.  If an inquiry is going to impact your score, it will happen right away.  This depends on how many inquiries you have already.  If the inquiry does not impact your score right away, it won't impact it suddenly at a later time.  One lender seeing another lenders inquiry will not impact APR, so that's not something to worry about.

The 3 major reporting agencies do not update scores.  They simply update your profile data as it is provided to them.  Your FICO scores are generated based on that data.  Your lenders will typically report to the bureaus once per month, meaning the bureaus will have an update to each of your accounts once per month generally speaking.  This means that each time those accounts are updated, your score could potentially change based on the data possibly changing.  Utilization changes would be one of the most common reasons for a score change from month to month.  If you pay down your utilization 45 or so days before you plan on apping for your loan(s) that would be plenty of time for the bureaus to receive that new data and thus your scores would be generated off of that new (better utilization) data.

One thing to keep in mind is the AZEO method, which means allowing all of your revolving accounts to report a zero balance except one where you'd allow a small balance to report.  This small balance could be anything from say $5-$40 or so.  Doing this would maximize your scores prior to loan apping.

[Remedios]

If you cards report AZEO every month, does it give your score a boost each month or is it one time deal ? 

[expatCanuck]

One time deal.  But you have to maintain the AZEO reporting to maintain that score boost.

[Remedios]

Got it. Thank you! 

[Anonymous]

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@Remedios wrote:

If you cards report AZEO every month, does it give your score a boost each month or is it one time deal ? 

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The boost comes one time, but it is maintained by maintaining AZEO.  AZEO in place = boost.  Back to ALL zero = boost gone.

[Remedios]

Thank you for clarification. I currently have two cards reporting, both below 9%, so it will be easy to have only one reporting. I don't even have a score yet, and with my luck, it will be a negative number.

[Anonymous]

A negative would be impossible, so don't worry about that.  With responsible credit behavior, there's no reason why your score won't debut around 700 once it generates.

Having 1 of 2 cards reporting means 50% of your cards will be reporting a balance.  This is better than 100% of course, but for maximum FICO scoring you want this number to be less than 50%, meaning you'll want to scoop up another revolver at some point so you can allow 33% of them to report.  Just something to keep in mind going forward as you enter the world of credit when it comes to score maximization.

[Remedios]

Thank you. I appreciate it. I do have a third card (Discover It), but it'a AU. Same age as the other two (4 months), but I have no idea how AU would affect the score. I use it for 5% , but pay off before statement cuts. Would it be better to get a third one now, or wait a bit so it does not look like "aggressive credit seeking"?

[Anonymous]

I'd wait for now if I were you.  Not so much because of the aggressive credit seeking, but simply because at this time you don't really need the third card or FICO score boost.  I'd let your scores generate first, then let them grow another 6 months or so.  Once you hit 1 year of credit history, there's no reason that your scores won't be in the low-mid 700's, meaning you'll stand a pretty strong chance of getting approved for most cards and likely with a better SL than if you were to apply for the same card now with no credit score and more limited credit history.  I'd take the first year of your credit life simply managing those 2 revolvers well, always paying in full and simply letting your accounts age and score grow.  During that time you can read up a ton on here, hit up the credit card forum as well and really research the CC products that interest you the most.  By the time you decide to app, you'll know more about the product than the bank with which you're applying for it through, so you'll be extremely confident in your approval and decision.  When I applied for the CSP (my first Chase product) I had been researching it for 6 months on here first and knew everything there was to know about it... typical credit scores approved/denied for it, the approximate SL I'd get, the bonus, the rewards, the bureau(s) they'd pull, how long it would take the card to get to me, the recon number, 5/24 rule, you name it.  I actually schooled the CS guy in-branch when I applied on a few things.  Knowledge is a great thing and I always recommend doing tons of research before pulling the trigger on anything.  So, my advice here is "wait" a bit before apping again.