Does a 10-Point Drop in My Credit Score Really Matter?

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  • Your credit score may get dinged from time to time, such as when you apply for a new loan or credit card.
  • While a small drop generally won't have a big impact, in certain cases, like right before getting a mortgage, it might.

While minor hits to your credit score are sometimes unavoidable, whether they make a difference will depend on the circumstances at hand.

There may come a point when you decide to apply for a new credit card. Or you may decide to apply for a personal loan to consolidate some existing debt or borrow for another purpose. Whenever you do one of these things, the card issuer or lender will need to dig into your credit history and make sure you're a trustworthy borrower, and a hard inquiry will be performed on your credit record. All this means is that a lender is accessing your credit report to do its due diligence. But each time you get one of those hard inquiries, your credit score could take a minor dip.

Thankfully, a hard inquiry will usually only bring your credit score down by about five to 10 points. And for the most part, that sort of drop won't really be a big deal. But in certain circumstances, even a small hit like that could have negative consequences.

When a minor credit score hit does and doesn't matter

Generally speaking, a 10-point decline in your credit score isn't something to worry about, nor is it a reason to not apply for a credit card or loan you think will serve you well. Imagine you have a credit score of 810, which is considered excellent. If your score falls to 800 after you apply for a credit card, guess what -- it'll still be considered excellent.

Similarly, a score of 690 is considered good. If your score falls to 680, it'll stay in that same category. But when your score is teetering on the verge of being too low to qualify for a loan, that's when you need to worry about a 10-point drop.

Say you're looking to apply for a mortgage. The minimum credit score needed to qualify for a conventional home loan is a 620. If you have a score of 620 and you apply for a new credit card before applying for that mortgage, by the time you submit that home loan application, your score might drop to 610. That could make it so that you're unable to borrow for a home.

A small credit score hit could also, in some cases, spell the difference between a lower interest rate on a mortgage and a higher one. Imagine you have a score of 750 and that based on that, a mortgage lender you're working with is willing to give you its lowest interest rate available on a home loan. If your score then falls to 740, that may be right outside that lender's threshold for snagging its lowest rate, and so you may get stuck with a slightly higher one.

To be clear, a 10-point credit score drop won't always cause you to miss out on a lower mortgage rate. But technically, it could happen.

Still, that doesn't mean you need to sweat every minor hit to your credit score, especially if it's already in great shape. You should, however, be careful when applying for new credit cards and loans -- especially if you know you'll be applying to borrow an even larger sum of money, like a mortgage, in the near term.

Are hard inquiries avoidable?

If you want to take out a new credit card or loan, then there's generally no avoiding hard inquiries on your credit report. But one thing you can do is space out your credit card or loan applications so you don't have too many hard inquiries at once.

There's an exception to this rule, though. If you're shopping around for a mortgage, it actually pays to apply with different mortgage lenders all within the same short time frame -- ideally, within 14 days.

In that case, the various hard inquiries on your credit report will all count as one because they're being performed for the same purpose.

If you're buying a home and are seeking out rate quotes from six different lenders, you're obviously not going to then take out six different mortgages (whereas if you apply for six different credit cards, you might, conceivably, open six new cards).So rest assured that your credit score won't sustain major damage because you’re doing the smart thing and shopping around for rates.

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