27 Dec How Often Should I Apply For New Credit?
The technology has revolutionized every field of life. The same has affected the finance sector of the country. Now, the money has taken the form of plastic money and in that debit and credit cards usage have reached their threshold. The charm of using credit cards will not end up ever as the user feels freedom while shopping through the credit card. When it comes to online shopping, the use of credit cards for payment has become one of the most popular ones. So, people are too much interested in getting as many credit cards as possible to fulfill their shopping desire. But, as a matter of fact, you may not apply for new credit one after the other during a short span of time.
Factors Determining the Frequency
When you apply for a new credit, it is analyzed from multiple angles and a credit score is calculated. A credit score is calculated by FICO. The most common factors that are accountable for the calculation of credit score are as follows:
Payment to your creditor plays a key role in the calculation of your credit score. If you are good at making payments to your creditors timely, you will increase your chances of good credit score. Good credit score means you can apply for a credit more frequently. Please keep in mind that each and every type of loans are considered under this such as payments of the car lease, home finance, mortgage loans, retail accounts and other credit cards. There is no hard hit you will face if you have done some delays in your payment. What matters most is that you must not make a default in disposing of the loan. If you have any lawsuits and liens attached, then, of course, you will face lower credit score from FICO. So, you need to work out over these factors before applying for a new credit. On an average, if your credit score is good due to good payment history, you can apply after 3 months for a new credit.
Total Amount Owed
One of the key factors which determine the FICO’s credit score is the total amount of money already borrowed from lenders. If you have taken a very little amount of loan by any means, your risk profile is low, so you will not face any issue and you can apply for a new credit within 3 months. However, if you have already availed a big amount of loan, then it means that you have reached your maximum allowed credit limit. So, your profile is high risk and it would not be prudent to award the further loan to you. If it is done, you will not be able to pay your outstanding liabilities, installments and credit card payments on time which will yield up further interest that you will not able to pay off. This may lead to bankruptcy and all the creditors will find them in hot waters. So, it is good to wait even for a year to apply for a new credit. Otherwise, your application will be rejected and this rejection will also lower your credit score.
Length of Credit History
If you are availing the credit history from a longer period of time, your credit score will be in good range like above 600 and will be near 800. It means that you can apply for a new credit within 03 months. However, there are people who have very a short period of credit length and start to apply very frequently for another credit facility. What happens is that their application is rejected and their score is also reduced by certain points. One can take the risk of repetitive applications in a short period of time if the credit score is near to 800. If it is around 500, then forget the habit of applying for the new credit facility. Instead, wait at least 06 months to make your case stronger so that FICO could accept your application.
If you have not applied for a credit before, then your credit profile will be lower as FICO has no records about your payment history and your reliability. It takes time to build the reputation and gain a good credit score. So, start taking credit facility after a gap of 06 months to ensure that your new credit application can be accepted. Ideally, being a new entrant in the credit industry, you can apply for a new credit facility right now. After that, take a gap of at least 06 months for another credit facility.
FICO calculates your credit score after determining all the above factors and in combination. It is not necessary that your application will be accepted even you have a good payment history. Your application might be rejected if you have reached your maximum credit limit even you have good standing for paying off your loans. The ratios such as interest coverage also play a vital role in the determination of the borrower’s ability to pay off the loans. It is calculated by dividing the interest payment by the total income of the borrower. If it is high, it means that borrower has to pay a major portion of its income towards disposing of the interest payment which is also alarming and portrays another story of late payments of the installments.
How Often Should I Apply For New Credit?
It varies greatly from person to person and it is not an easy task to know the exact answer as FICO places different weightings to various factors enumerated above. Not just that, combinations of factors also determine the credit score a lot. But as far as our experience in the industry, we can suggest you to wait at least 6 months to apply for a new credit facility to avoid any types of loss that you may face due to the rejection of the application.