Posted: 03 Dec 2009 06:45 AM PST
'Tis the season to do shopping -- and get bombarded with offers to open credit cards.
The deals are tempting, too. "Open a charge card today" and save up to 20% on your purchase. Considering that the average Black Friday ticket was $343, that's $68 saved per store.
For big-ticket items like televisions, the savings are even bigger.
But for people in the market for a new home -- or looking to refinance -- taking advantage of in-store savings could be a long-term money loser.
Every time you apply for a credit card, your credit score drops.
According to myFICO.com, "new credit" accounts for 85 out of 850 possible credit scoring points. New credit is defined by such traits as:
Shoppers with few open credit cards are more likely to see their scores drop that shoppers with many cards.
Regardless, a credit score is worth protecting because of how mortgage rates are made. A conventional mortgage applicant with 20% equity whose FICO is 720-739 will be offered rates 0.125% higher than a comparable applicant at 740.
Having a low credit score can be expensive.
It is okay to take advantage of in-store savings during the holiday shopping season, but it's also important to be aware of how your credit score may be affected.
If you're not applying for a mortgage in the next six months, you'll likely be alright. But, on the other hand, if you know you'll need your FICO soon, consider whether saving 15 percent on a $343 ticket is worth the long-term cost of a higher mortgage rate.
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