“Do you want to put that on your charge card for a special discount? If you open a charge card with us, you will save 30% off of today’s purchase!” is what you will hear at every department store you visit over the holidays. Sounds great, right? Not when it comes to credit scores!
Actually, opening a new store account and then charging your purchase on the card can dramatically lower your credit scores. You would not believe how much a new $300 card with just a $270 charge can do to your credit scores!
Here are the top ways a holiday trip to the store can affect your credit scores
Remember that not only does shopping affect your credit scores, it also hurts qualifying for a mortgage, car, insurance, or other rates negatively. Here are the ways a new account hurts credit scores.
- New credit inquiries can lower a score
- Newly opened accounts affect the average age of your credit history which can lower your scores
- Department store cards usually have a lower credit limit and if you are very giving this holiday, your higher balance compared to the limit will lower credit scores
- Lump all of these together and you have a riskier profile as credit bureaus see it
- Higher risk = Lower credit scores = Higher rates on mortgages, auto or student loans, or insurance rates
If a homebuyer opens two cards and charges near the limits, it could potentially take a score from 740 to 680 which often makes a big difference in loan approvals and rates.
If you are in the process of purchasing a home or will be in the next few months, talk to your mortgage professional before opening a new credit card account. An inquiry + new account opened + a purchase = Lower scores! Even worse, opening cards or spending during the mortgage process could turn an approval into a denial just before closing!
Additional Resources on Credit Scoring: