Black Friday 2013 is behind us and Christmas is right around the corner.
This year holiday spending is projected to rise some 3.9% over the 2013 holiday shopping season. So while you’re trying to make your way through crowded malls be sure to not fall for one of the most dangerous credit related traps - the inquiry trap.
Not All Inquiries are Created Equal
An inquiry is a fairly benign entry on your credit report. It simply indicates that a company has accessed your credit report and on what date. Inquiries are worth 10% of the points in your FICO credit score and according to VantageScore Solutions inquiries are “Less Influential” to your VantageScore credit score.
So why all the focus on inquiries?
The focus is important because many retailers are offering between 10 and 20 percent discounts this holiday season if you open a new account with them. So if you spent $500 on Black Friday, and opened new retail store accounts to do so, then you probably saved about $50 on your purchases. Sounds good, right?
The problem is every time you took advantage of one of those offers you allowed a retail credit card issuer to access you credit report. This means they left behind a credit inquiry. And, retail card inquiries are among the most damaging of all inquires.
If you took advantage of several of those discount offers then you compounded the problem by adding several retail card inquiries to your credit report/s. But still, is this problematic? It certainly can be.
Credit card inquiries remain on your credit reports for two years and are considered by credit scoring systems for their first 12 months on your credit file.
That means if the inquiries are lowering your scores, they will do so until Black Friday 2014. And unless the inquiries were caused by fraud there’s no getting them off your credit reports.
Every Point Matters
This isn’t a problem for people who have very solid scores, 720+ on both the VantageScore and FICO score scales. But, for people who already have marginal credit scores (anything below 720) every point matters and the negative impact of the inquiry or inquiries can mean anything from a higher interest rate on a loan to an outright credit declination.
When you think of it in those terms saving a few bucks on your Christmas shopping starts to lose its luster. This is something you have to consider over the next 4 weeks as you’ll be getting non-stop offers from the cash register clerks to save money on purchases in exchange for applying for credit. And if you’re wondering why those offers become some much more aggressive and prevalent during the holiday season, the check out clerks are incentivized to push those offers.
Retailers also know that most of us will be spending more in the last 5 weeks of the year on credit cards than we spent in the previous 47. That kind of spending activity makes a 10-20 percent discount very enticing.
2014 is Right Around the Corner
So if you are in the market for any sort of loan in 2014, we highly suggest you not open new retail store cards this month. And, if you don’t have a loan in your 2014 plans, we still suggest that you think long and hard about opening new cards this month. You simply don’t know what you don’t know.
What if your car dies on you? What if you finally decide to buy a home or refinance an existing mortgage? What if you want to take out a personal loan to pay off expensive credit card debt?
What if you want to transfer the balances on your credit cards to one of those great “zero percent on balance transfers for 18 months” credit card deals that are all over the place right now? Each and every one of those credit maneuvers requires that you have solid credit reports and solid credit scores.
Loading up on retail credit card inquires certainly won’t help with any of those applications and can certainly lead to declinations and higher rates.