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.
In 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.