If you are worried about what happens to your credit score when you apply for a new 0% APR card, then this tip is for you.
Here is what myFICO.com says about factors that do not affect your credit score:
Your own credit report requests, credit checks made by businesses to offer you goods or services, or inquiries made by businesses with whom you already have a credit account do not count toward your FICO score. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your FICO score.
Read that carefully, it says “…inquiries made by businesses with whom you already have a credit account do not count toward your FICO score ”
For example, if you already have a Citi card and if you apply for another Citi card (or multiple cards) to avail a 0% APR offer, the new credit inquiries are not going to hurt your credit score. That’s good right? At least that is what I understand from the above information.
My good friend, Sun raised this issue on my previous post about credit scores and I thought about clarifying a few things here. Apparently, many people apply for a lot of credit cards in one fell swoop, banking on the fact that there is some mechanism in the FICO score that does not account for multiple inquiries done at once. That’s not entirely true and it’s important that you understand it. Here is what may be confusing people (source):
Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though youre only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score.
It’s important to note that this feature is only applicable to auto loans and mortgages. This is not applicable to credit cards. Here is what the website says about credit cards:
If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time.
So, yes, an app-o-rama has the potential to hurt your credit score (unless you follow the tip that I mentioned at the start of this post). While it’s true that credit inquiries have the least effect on your credit score (as noted by another blogger here), it is still important to understand these things before you go about doing an app-o-rama for 0% APR credit card arbitrage. Inquiries hurt different people in different ways. Don’t do these things just because others are doing it that way.
It will be in your interest to read all the factors that appear here: myFICO Credit Inquiries, before you start getting into this 0% APR arbitrage game.