Why I Won't Stress a Minor Hit to My Credit Score

When you have solid credit to begin with, a small decline in your score shouldn't do much.

You've probably heard that the higher your credit score, the better financial shape you'll be in. With a strong credit score, you're more likely to get approved for a new credit card, personal loan, mortgage, or any other type of financing you seek.

Credit scores range from 300 to 850, with 300 being utterly abysmal and 850 being perfect. It's actually pretty hard to achieve a score of 850, especially since small hits here and there can bring your score down. But while minor credit score drops might bother some people, I don't let them bug me at all. Here's why.

You don't need perfect credit

There was a point in my life when I actually had a perfect credit score. But that was before I applied for a mortgage and took on other expenses that resulted in me applying for various lines of credit.

Each time you apply to borrow money, it results in a hard inquiry on your credit record. The occasional hard inquiry won't hurt you, and even a few hard inquiries shouldn't do that much damage, especially if you space them out.

Hard inquiries are the main reason my credit score has gone down over the past several years. Last year, for example, I refinanced my mortgage, and that caused my score to sink about seven points. This is in line with what most people will experience with a hard inquiry (usually, a hard inquiry means a 5- to 10-point drop). And while I didn't open any credit cards in 2020, I did open two in 2019, and each one dropped my score by about five points as well.

But at the end of the day, those small drops aren't a huge deal for me because my credit score started out high. While I admittedly don't remember exactly what it looked like in 2019, I know it was well above 800 at the time. And last year, when I went to refinance my mortgage, I believe it was around 810. From a borrowing perspective, the difference between an 803 and an 810 is negligible. You're unlikely to score a different mortgage interest rate, for example, with an 803 versus an 810. Similarly, you're likely to get approved for a credit card with either number.

Of course, you don't want to rack up too many hard inquiries within a short time frame because that could hurt your score. And if your score is right on the cusp of a certain threshold you're trying to reach, a minor hit could be damaging. For example, most mortgage lenders require a minimum credit score of 620 to get a home loan. If you have a 623 and apply for a credit card, you could get knocked down right below that threshold. But if your score is in great shape and you apply for new loans or credit cards sparingly, you shouldn't sweat the minor hit your credit takes.

Another thing you should know is that hard inquiries generally only stay on your credit report for two years. That's why spacing out your new loans or credit cards is important.

In my case, I applied for a new credit card in early 2019 and mid-2019. This means that pretty soon, the first hard inquiry should be coming off of my credit report.

That said, I don't expect a five-point credit score gain to do much for me either. And that's okay because I don't need it to. My goal is to keep my credit score in good shape by paying all bills on time, using only a small portion of my available revolving credit, and keeping long-standing accounts open and current. Doing those things will have much more of an impact than the occasional loan or credit card application.