Doctors and Credit Inquiries – what you need to know…

For various reasons, Doctors oftentimes have numerous inquiries reflected in their credit reports. As a Doctor, you should know that contrary to popular belief, when a creditor checks your credit report only once, it may not necessarily result in a noticeable change to your FICO Score. However, multiple credit inquiries within a certain time period may actually hurt your credit score.

Here's why…

Generally, 10% of your FICO Score is influenced by an inquiry. Your credit score is determined by an algorithm that uses information from credit reports to segregate consumers into groups of 10 scorecards, by 24 variables and 300 components. Depending upon which scorecard you are grouped into, a different amount of points are deducted from the maximum credit score whenever you apply for credit.

Several factors can influence the credit scoring algorithm to deduct points: the number of inquiries in a certain period of time, the frequency of certain inquiries, the type of inquiry within a certain time period and many others. However, without seeing your actual credit report it's difficult to predict the expected damage to your credit score due to inquiries.

Different scorecards deduct different amounts of points from the maximum score. Each scorecard predicts, for that particular consumer group, the probability that a certain individual will be 90 days late within the next year.

Fair Isaac Corporation (FICO) based this prediction upon their analysis of thousand of credit files all similar to others on that specific scorecard. This prediction has a point value to it. So for example, one individual may lose 2 points and another individual may lose 12 points for the same type of inquiry depending upon which scorecard they are grouped.

Here's another example. Let say an older, more experienced physician, that has not applied for credit for many years, in a period of three month has five credit checks. The algorithm uses its knowledge of similar behavior of thousands of other files and makes a prediction of the probability that this new event will create a higher or a lower risk factor. This prediction is then translated into points.

Also if a young dentist applies for his first credit card the algorithm using similar aged credit with similar characteristics determines the risk factor from those similar files (not the more experienced dentist's group) to give a value to that particular inquiry.

We once talked to a Doctor who blamed a 100 point loss on a single inquiry. However, there is no evidence that even 15 inquiries can cause such a huge damage to your credit score. There are other factors involved in such a big point change. Many of those factors are hidden from the untrained eye.

However, a close look will better illustrate the true impact of inquiries on a person's credit score. The maximum FICO Score available is 850. Inquiries account for 10% of the FICO Score. 10% of 850 points is 85 points. So a 100 point drop in the FICO Score caused only by one inquiry is not possible.

The only way to experience a huge drop in points related to inquiries is to apply for credit without first doing proper research, thereby resulting in multiple credit denials.

So we counsel our clients to avoid making the mistake of applying for credit cards for which they cannot qualify. Not only should your credit score be considered, but other elements of your credit report have the potential to disqualify you for credit approval.

So before making a credit card application make sure you first check all of the requirements for that particular card, how many lines of credit are needed on your credit profile, and how many years you need to have for those lines of credit to qualify. Also confirm if the credit card company will only qualify you if you bank with that particular creditor. Remember, not every inquiry and not every credit card is created equal. Do your research or consult with someone to do it for you.

Contact us today to schedule a credit check up!

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