Applying for that store card can hurt you

This is one of my pet peeves:  you walk into a store, go to make your purchase, and when you line up at the cash register, the clerk suggests perkily:  “Would you like to apply for our (fill-in-the-blank) Store Card? You can save $X dollars (or X percent) on your purchase today…” Don’t do it! These pitches – a common part of the retail experience – can potentially hurt your credit. Here’s how to protect your credit instead.

Applying generates a “hard” credit inquiry

This is visible on your credit report and every lender looking at your credit report will see it.  What’s so bad about this?  Well, every time you seek credit by applying for a credit card, store card, or loan – you generate a hard inquiry. Too many inquiries flag you as a potential credit risk because you look like a “credit seeker”, signalling credit desperation.  And, they will drop your credit score.  Not a good thing!  You should keep these to a minimum.  Especially if you are trying to improve your credit, recover from bruised credit, or establish credit, these seemingly innocuous little credit inquiries can set you back.

There are exceptions, of course. If you are shopping for a loan or a mortgage, a lender will expect to see a short burst of inquiries against your credit score. It’s best if these happen fairly quickly and around the time of a loan event.

Checking your own credit is different

You may also have heard the term “soft” inquiry.  These are different: only you can see them, and they do not impact your score. Potential employers might make an inquiry, for example. And when you check your own credit report, your inquiry is both invisible and irrelevant to your credit score.  In fact, periodically checking your own credit – at least once a year – is highly recommended.  This enables you to catch errors on your credit report (they happen more often than you would think), and guard against identity theft.   If you see inquiries or activity that don’t look accurate, notify the credit bureau immediately so that they can advise you on how to correct the problem. Click here to go to Equifax’s website for details on how to check your own credit.

And of course, checking your credit periodically will also enable you to keep an eye on how your credit score is improving!

Photo credit: [c] Milan Jurek for stock.xchng