We recently had the pleasure of sitting down with Rod Griffin, Director of Public Education with Experian. Experian is a leader in the credit services industry and is 1 of the 3 main credit bureaus that create, manage, and report your credit score. You see the Experian name anytime you run a credit report or score. Rod was kind enough to provide candid answers to many of the questions that our users have asked us. We figured, what’s better than going straight to the source?
We’ve divided this interview into 4 parts:
- Part 1: Credit Basics
- Part 2: Denials and Closing Accounts
- Part 3: Let’s Talk Numbers
- Part 4: User-Submitted Questions
Part 3: Let’s Talk Numbers is below. We hope you enjoy and learn something along the way!
RS: We understand that “credit mix” is 10% of your score. Does having multiple credit lines of the same type (i.e. 2 credit cards vs. 1) improve mix, or is it just different types of lines of credit (i.e. auto loan and credit card)?
RG: What they’re looking at with mix kind of goes into the length of history – somewhere around 10-15% (referring to length of history). So it looks at the length of time you have had accounts opened. It looks at the types of accounts you have had open: installment loan, credit card, mortgage loan, auto loan, etc. All of those different types of credit weigh into your score. So it’s looking at different kinds of credit (mix) and how long you’ve had (credit) opened and (how you have) managed those accounts positively (history).
RS: We’ve heard that new card inquiries “matter less after about 90 days” and less after a year. What’s the real story with that?
RG: That’s true. Inquiries initially are significant because they represent potential debt that is not yet known. Credit issuers don’t know if that is going to be an account or not. If it is, they don’t know how much credit will be issued and then they don’t know how much of the issued credit will be used. FICO says somewhere between 5-10 point decline initially, so not exactly a huge impact. Actually a small impact initially. After 3-6 months or so, after about 2-3 billing cycles or 90 days, that impact is going to start declining because it will be a new account, which is really the risk indicator. FICO scores exclude inquiries after 12 months. Under Federal Law (Fair Credit Reporting Act), Experian has to keep the inquiries on your report for 2 years so individuals can safeguard against any fraudulent accounts.
RS: If you apply for multiple cards from the same bank on the same day, is that 1 inquiry or multiple inquiries?
RG: You would most likely see multiple inquiries, one for each application. The card offers are going to be different, so the banks are going to look at each application, look at your report for each application, so you would probably see multiple inquiries. And, very likely, the first inquiry/application would have an inquiry and the second application would see the first inquiry from the first application, the third application would see the inquiry from the first and second application, etc.
RS: We’ve learned that as a rough estimate your score may drop a few points with the application; is that multiplied by 3 if I apply for 3 cards or is that treated differently?
RG: Well, it could be or not. It depends on the individual’s credit history as to what that impact will be. But, it’s not a good idea to apply for a lot of credit at once. That’s another indicator of risk. What that does, when you see a lot of inquiries all at once, there is a risk that you will charge all of your available credit. [RS note: we are comfortable applying for several credit cards at once given the way we use credit (again, responsibly, keeping overall utilization low, paying in full each month, spending on one card at a time)]
RS: Is there an acknowledgement of “shopping around” for the best offers? Where you’re not adding additional credit to have credit, but looking for the best offers for you?
RG: A couple of things there, the newest VantageScore actually treats multiple inquiries for credit cards within a 14 day period as one inquiry. Just like FICO and Vantage do for mortgage loans and auto loans, so they lump them all together. Scores are changing in that regard. They recognize, in most cases, that you’re shopping for the best rates. So, it’s possible that they will only count them as 1 inquiry, but it all depends on the score provider and the lender. But, we’re also seeing changes in the ways that these inquiries are weighed. Score systems are always changing and some of these
One thing that I’ll squeeze in before we [finish] is everybody should get their report at least once a year free at annualcreditreport.com and they can get their free report and score at freecreditscore.com. These reports also include the factors that make up their score, so the individual will know what factors they need to be concerned with. If inquiries are an issue, they’ll show inquiries as a factor to be concerned with. Inquiries are always the least-important factor, so if inquiries are causing you to be declined or not getting the best rates, there is always something more serious in your report. There always will be. [RS note: good advice!]