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Topics addressed on December 22, 2010:
Inquiry for credit line increase could impact scores, but is not the only issue
If I ask for a credit line increase on my credit card, part of the credit card process is to do a credit check with Experian. Does this type of credit inquiry affect my credit score?
Yes, the inquiry could have a minor and temporary negative impact on your credit scores. But you can’t consider the inquiry in isolation. If your request is approved there are other important changes that could have a more significant impact on your credit scores.
For example, when you increase your credit line, you immediately will reduce your overall credit utilization rate. As discussed in previous columns, your utilization rate is the ratio of your credit limits to your overall balances.
A lower utilization rate often will have a positive impact on your credit scores. As a result, the lower utilization rate resulting from the credit limit increase likely will reduce or offset any negative impact caused by the inquiry.
However, if you then increase your balance because you have a higher limit, then you not only won’t have improved your utilization rate, but you will have added to your total outstanding debt. That could decrease your scores.
The key point is that everything in your credit history is interrelated. A change to one thing can affect other items and issues in your credit history.
It’s the proverbial string. If you pull one end of the string, everything attached to it will be impacted.
That’s why we encourage you to not focus on a single item, like an inquiry. Instead, consider your overall financial situation. Don’t let a temporary change to your credit scores cause you to make a poor financial decision for the long term.
Thanks for asking.
- The "Ask Experian" team