While new credit only accounts for 10% of your FICO score, it really can't be ignored. If you're young and don't have a lengthy history, opening up a new account can hurt your score as too much credit is generally considered risky. If you have what might be construed as too many accounts, then the thought is that it's too much to keep up with, especially all those different payment dates.
What Is Considered New Credit?
Any account that has been opened in the last six to 12 months is considered new. Since a new account won't have a history, FICO therefore considers a new borrowing to be riskier and thus more likely to become delinquent. Your FICO score will be impacted no matter what type of loan, be it a mortgage or credit card or auto loan.
What Are The Criteria Used For New Credit?
Here are the things that are taken into account when a new account is opened:
- How many new accounts that have been opened in the last 12 months
- The ratio of new accounts to existing accounts
- How many recent inquiries there have been
- How long it's been since you've opened a new account of that same type (as the new one you're opening)
- How long it's been since your last inquiry
Soft inquiries (those you've initiated) shouldn't affect your score; however, hard inquiries may impact your score by five points. Then you get dinged again if the account is opened.
Multiple inquiries for the same loan will not affect your score as long as the inquiries are all within 30 - 45 days. FICO considers the fact you're shopping around for the best deal, as the loan is for the same car, etc.
But...Can't New Credit Eventually Help?
Absolutely. First of all, it's always a good sign when you make good on a past due account. Additionally, if you've had a "troubled past," it's good to open a new account and pay on time; it won't take long in this instance to see your FICO score rise. However, only open accounts you need; again, too many accounts will lower your score.
With all that's said, it's more important to be concerned with your balances than how a new account will affect your score.
Do you think opening a new account is a good idea or not?