Usually, it's a mistake to obsess about your credit score. Of course, it's always important, but you should expect it to change a bit. In 2012, VantageScore, one of the companies that build the complex mathematical models that generate scores, reckoned that within any 90-day period, around 70 percent of all scores vary by up to 20 points. It's normal to see these minor variations, and they're rarely important, if only because -- absent other issues -- most of the smallest dings are ironed out by the passage of a little time.
Times to Obsess Over Credit Scores
However, there are times when even tiny changes can be vital. Some lenders use bands or tiers of credit scores when deciding on the interest rates they're willing to offer borrowers. If you start off just inside one band (for example, your score's 704, just above a 700 threshold), the loss of only a few points could make you pay a slightly higher rate.
"Slightly higher" may not sound too scary, but it can sure add up if you're borrowing a lot over a long period. So you need to actively manage your every financial move for at least six months before applying for a mortgage, student or auto loan or any other important credit account.
Impact of Applying for New Credit
When you apply for any new account, the lender is likely to inquire about you through a credit bureau. According to FICO, another developer of scoring companies, "people with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports."
So it's no surprise that even a single inquiry can knock a few points off your score. How many depends on a whole lot of other factors in your credit history, but VantageScore suggests a drop of 10-20 points would be common.
This doesn't mean you shouldn't shop around for the best rates. FICO says its systems don't count inquiries until 30 days after they're made. Those that are part of a comparison shopping exercise are generally recognized as such, and counted as a single inquiry. Those systems then check back over the two weeks before the 30-day period began, and adjust your score so ones during that earlier time are also included in that one inquiry. VantageScore appears to give you less time to explore the market, perhaps as little as 14 days.
By the way, checking your own credit report has absolutely no effect on your score, even if you do so frequently.
Impact of Getting a New Credit Card
If, after your lenders have made their inquiries, you then open a new credit card account, your score may be hit again, although not by much. The length of your credit history accounts for 15 percent of your total FICO score, and one of the components of that calculation is the age of your most recently opened account. Again, VantageScore may differ, but the company says that, providing you make payments punctually and don't use too much of your available new credit, the impact of a new card should fade away to nothing "within a short time."
You can see why in normal circumstances these minor variations in credit scores can easily be shrugged off. But their effects during the months leading up to a major application shouldn't be underestimated.
Writing on the Forbes website in 2012, Caroline Mayer recalled how shocked she was when her credit score turned out to be 30 points lower than she expected when she applied with her husband for a refinancing. Turned out the likely main cause was a store card she got just before making that key application. The store card saved her $40 on her purchases that day. If as a result she had to pay a higher rate to refinance her mortgage, those could have been among the most expensive goods she ever charged.