Further results show increasing a credit card balance by $2,000 can lower credit scores by as much as 68 points. And, based on recently published mortgage rates associated with credit scores, the effect of a 40-point drop could be paying $9,057 more on a $200,000 30-year fixed mortgage.
FreeScore.com based its findings on FreeScore.com members who conducted 78 simulations on the FreeScore.com Credit Score Predictor. The results are:
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Action
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Range of Credit Score Changes
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| Open new credit card with $2,500 limit |
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-52 points to +14 points |
| Increase balance $2,000 on existing card |
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-68 points to +16 points |
| Add 1 credit inquiry plus getting |
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| 1 new credit card with a $2,500 limit |
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-55 points to +14 points |
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According to Carrie Coghill, director of consumer education at FreeScore.com, “If you are going to be in the market for a home, saving 10% on purchases by obtaining a new credit card from a retailer this holiday season could cost thousands in the end. First-time homebuyers should be especially wary of new cards because consumers with shorter credit histories had the greatest reduction in credit scores during our simulations. New credit cards and mortgages do not always mix,” she warned.
To view the complete Mortgage Difference Tables derived from a Mortgage Calculator using rates from 10/11/11, click here. They show how much more a person could pay in total interest on a $50,000 – $300,000 30-year fixed loan according to different levels of credit score decline.
Coghill also commented on why credit scores could increase by taking the actions outlined above: “Credit scores are based on calculations of various aspects of a person’s credit history.
“While most understand that overextending your credit can lower credit scores, having too little credit can also lower your scores. Not enough credit lowers your credit scores because the credit bureaus do not have enough of your credit history to determine your ability to pay.
“Therefore, in some instances, when people add a credit card or increase a credit balance their credit scores can actually increase.”
For iPhone, iPad and iTouch users, FreeScore.com has a free app giving FreeScore.com members access to their credit scores. But it also allows any consumer to see current interest rates, find a home and estimate rates for refinancing a home.
Please note, for consumers to simulate their score, they must be members of FreeScore.com. The FreeScore.com Credit Score Predictor requires access to a member’s credit scores and history to perform simulations. Anyone can have a free trial membership to FreeScore.com for seven days. After seven days, a person automatically becomes a paying member, or he/she can cancel before the trial period ends and not be charged.
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About FreeScore.com
FreeScore.com is the leading online consumer credit service, providing members with affordable, unlimited access to all three credit scores and their complete credit profile. For more information, go to FreeScore.com. FreeScore.com is an FYI Direct, Inc. company.
