Home > 2013 > Credit 101

How Will Opening a New Account Affect My Credit?

Advertiser Disclosure Comments 2 Comments

How Will Opening a New Account Affect Your Credit?How a new account will affect your credit scores depends mostly on your overall credit history and on the type of new account you are opening. New accounts make up about 10% of your credit score.

First, opening a new account will likely produce a credit inquiry on your credit reports. This new inquiry may have no effect at all, or may make your scores go down slightly, depending on the type of inquiry and the number of inquiries already present on your report. Applying for credit excessively (like applying for many credit cards at once during the holiday shopping season) can almost always be expected to have a negative impact on your credit scores, as more inquiries tend to indicate higher credit risk.

In addition to the impact of new account inquiries, opening a new account can negatively impact your score in two more ways: 1) making your average credit age “younger” by adding an account with little or no history to the existing accounts on your credit report; and 2) an account with a recent “open date” on your credit report indicates to the scoring formula that a new account has been opened, which, as with inquiries and reduced credit age, indicates higher risk.

[Related Article: The First Thing To Do Before Applying For a Credit Card]

Free Credit Check & MonitoringIn the long run, adding a new credit account can help your scores if the account is unlike other types of credit you already possess, and it is paid on time. For example, if you already have credit cards and you take out your first car loan, this loan may help your scores over time by improving the “diversity” of your credit profile.

Also, adding an additional credit line to your credit history can help your scores by lowering your overall revolving credit utilization (total balances/total limits ratio), an important factor in your credit scores. This can occur when the newly added account increases your total credit availability (credit limits), more than it increases your total credit card balances — and thereby reduces this overall ratio. Conversely, if a new credit card carries a high balance, such as when transferring an existing balance to it, this can actually increase your overall revolving credit utilization — and lower your credit scores.

On the other hand, installment credit (mortgage, student, auto) utilization doesn’t have nearly the impact — good or bad — that revolving credit utilization has on scores, since this type of utilization is not nearly as significant a risk indicator. And as a result, there’s no need to worry about the impact of a new installment loan balance on credit scores in the same way you should be concerned about new credit card balances.

You can sum up the topic of new account impact on credit scores this way: Opening a new credit account can either lower, raise or have no impact on your credit scores. While it’s possible to raise your score with the addition of more available credit, and it’s possible that a new account will have no impact, it’s much more likely that you’ll see your score drop, at least slightly, when a new account is added; keeping in mind that any lost points should be regained within a few months, as the new account ages, payments are made on time and credit card balances are kept low.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

Image: iStockphoto

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Pingback: 5 Ways Your Credit Card Can Ruin Your Credit | Best Credit Repair()

  • Pingback: 5 Money Tips That Aren’t Absolutes | Best Credit Repair()

  • Not A Doctor

    I’ve only had one CC for 4 years, paid off student loans, and my credit score is 785. Just added a car loan ($22,500 after a large down payment), and my score dropped around 35 pts. Having just one credit card doesn’t seem to be a bad thing considering my score was in the excellent range before my car loan started.

    • ben franklin [pre death]

      True enough. But if you had 2 credit cards of the same standing, you might have been over the 800 mark and could possibly have softened the 35 pt blow of having a new loan.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team