Check out this great advice on credit checks!

January 28th, 2013 Holly Hankins

Here’s something financially smart to know. When a lot of people move away from home – and start living on their own – they also tend to apply for credit cards, loans for cars and other things. But what you might not know is that just applying for credit can have a powerful effect on your credit score…and your financial future.

That’s why we’ve put together these five great “Credit Check Tips” for you! “Check” them out, and you’ll make better decisions.

Are credit inquiries a negative factor in my credit score?

Truth is, having an occasional credit inquiry is not a negative factor on your credit score. The real negative issue is if you have a lot of credit inquiries in a short period of time. The reason a lot of credit inquiries have a negative impact is that lenders see you as applying for a lot of loans, and may even be in a financial bind.

How often can I apply for loans per year without having a negative effect on my credit?

Traditionally, you are allowed three inquiries before there is a negative impact on your credit score. Many credit score companies also treat multiple inquiries in one day – as seen when applying for credit through a car dealership – as just a single credit inquiry.

Should I apply for a loan at several banks, or just limit to one?

Honestly, by all means you should feel comfortable shopping for the best rate – or the best bank – in today’s economic climate where every dollar counts. The one thing you’ll want to do is to keep it all in a narrow timeframe, because as mentioned earlier, multiple inquiries in a single day are not seen as negative. Keep in mind though, even if multiple inquiries do impact your score, the effect is typically not enough to change a loan from approved to not approved – and if you’re getting a better rate, it’s worth it.

How many credit cards should I apply for per year?

The best approach is to be very responsible in managing your credit, and only apply for cards you need. Applying for cards “just because,” with no real need, exposes you to potential fraud, ID theft, and worst of all, making spending too easy.

Any other advice I should know?

When you open any type of credit account or loan, monitor it very closely to protect your identity from theft. You can even invest in a credit monitoring service, usually for a reasonable fee. The service monitors your accounts, and alerts you when credit inquiries have been made that you may not have initiated. It’s good financial protection.

Plus, it’s also good, when borrowing, to look at options that let you do additional borrowing in the future, but with no credit checks needed. Examples are home equity lines of credit and unsecured lines of credit.

About the author

Holly Hankins is an Officer and Consumer Loan Underwriter at MidWestOne Bank.

Comments are closed.