Q: I opened up a new credit card and my score went down; I know I need credit in order to rebuild, but how can I rebuild if my score goes down when I apply for new credit? Any help is appreciated.
A: Hi; When you apply for new credit 2 areas are affected; you get a hard inquiry and the average age of your account is shortened. Both of these areas are minimal points and temporary so, whatever drop you experienced will be regained as you make timely payments and keep your balances low. For my clients looking to rebuild quickly, I always inform them to stay under 10%, even if it's $1 below 10% of their credit limit. Otherwise you can get a good increase by remaining under 30% of your credit limit.
Here's a breakdown of how your credit score is calculated:
35% Payment History
30% Amount Owed
15% Length of Credit History (Age)
10% New Credit (Inquiries included here)
10% Credit Mix (different types of credit)
Most people assume ‘New' credit is positive, but it's actually a negative. New credit drops your score. Notice the percentages though.
~ Age is apart of the 15% (NOTE it's one of the things calculated into the 15% not the entire 15%),
~ Inquiries fall under 10% (Same thing; not the entire 10% but one of the things calculated into the 10%);
Together this is 25% of your score.
Good payment history and low charges/balances equal 65% of your score.
Focus on keeping your balances low and paying on time and whatever decrease in your scores you have will rebound in roughly 3mths.
Hope this helps 🙂