August 1st, 2016
Courtesy of Advantage Credit, Inc.
This is probably the biggest question we get in the credit reporting industry, “how much will (blank) affect my credit score?” You can fill in the blank with inquiry, opening a new account, closing an account, having a late payment, etc. The list goes on and on.
The truth is there is not a set amount of points for any of these things. It all depends on what the rest of your credit report looks like. The amount of points an action will affect your credit scores will also vary from bureau to bureau. For example getting a late payment might affect your Experian score 100 points and on Trans Union it might only be 50 points. Again, it all depends on what the rest of the credit report looks like. That being said any late payment is going to have a significant negative impact on your score, the kind of account the late payment is on doesn’t matter. A late payment on a credit card will have the same impact as a late payment on a mortgage. The system doesn’t look at the kind of account the late payment is on; it only looks at how recent it is and any recent late can drop your score potentially 100+ points.
Let’s look at some other examples:
Opening a new account – Any time you open a new account it will always have some negative impact on your score for a couple of reasons. It’s a new inquiry and a new account with no history. If it’s a revolving account it could have even more of a negative impact, especially if it was opened for a large purchase. In this case the balance could be close to the credit limit. This could have a very significant negative impact on the score, possibly anywhere from 50-80 points. An installment loan such as a mortgage or auto the balance is not really an issue. It is just the fact that it is a new account with no history. A new installment account or revolving account with no balance or a small balance will most likely affect your score only 10-30 points.
Closing accounts -The bureaus like to see a lot of open accounts. The perfect scenario would be two installment loans (auto/mortgage) and a couple open credit cards with small balances. But they also want to see several other revolving accounts with long histories and no balances. If someone has 20 open revolving accounts that they haven’t used forever, closing some would be ok. But it would be good to keep at least seven or eight open. Just remember to use them every once in a while and always keep a small balance on at least one. It can actually hurt a credit score to have no revolving balances at all.
Collection accounts – Like a late payment, a collection can potentially affect your score negatively by 100 points or more. The amount of the collection or who the collection is owed to doesn’t matter. A $10 medical collection will have the same impact as a $10,000 collection for a charged off credit card that was turned over to a collection agency.
Inquiries – If you have a really clean credit report, one inquiry may not have any impact. If an inquiry is going to affect the scores it’s usually not more then a few points, possibly 10 at the most. And that would be only if you went out and applied for four or five different credit cards all at once. Then the total impact of those inquires could be around 10 or so points. With mortgages and autos there’s a “window” that allows you to shop so that multiple inquiries for those purchases will only count as one hit on your credit report.
Every action you take when it comes to accounts that report to the credit bureaus can have an affect, positive or negative, on your credit scores. The important thing to keep in mind is try to avoid the things that have the negative effects and focus on what will have a positive effect.