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How will opening a new credit or loan account affect my credit scores?

How a new account will affect your scores depends on your particular credit history and on the type of new account you are opening. You can use our Credit Score Compass to evaluate how the change might impact your own credit.

First, opening a new account will produce a credit inquiry on your credit reports. This new inquiry may make your scores go down slightly, but only temporarily. Applying for credit excessively, however (like applying for many credit cards at once during the holiday shopping season) will almost always have a negative impact on your credit scores because of the multiple credit inquiries the new accounts will produce.

By opening a new account you will make your overall credit age be younger, or more recent, which could potentially hurt your scores. However, as long as you gain positive history through responsible credit management, your new account will help your scores in the end.

Adding a new credit account can help your scores if the account is unlike others that you already possess. For example, if you open your first car loan, this credit account may help your scores because it will improve the diversity of your credit profile (however, the same golden rule from above applies: it will help you only if you manage it responsibly).

At the same time, adding an additional credit line to your credit history can help your scores by lowering your revolving utilization, which factors into your credit scores. You can lower your revolving utilization if the new account is a credit card account which increases your credit limits, thereby lowering your total revolving utilization. You also need to manage the new account responsibly, of course. The only type of new account that will not help you – and instead will hurt you – are finance company accounts. However, if a new credit card carries a high balance (or if you transfer a balance to it), this can actually increase revolving utilization and lower your credit scores.  Installment accounts (like a home or auto loan) don't really matter in this respect, since the balance isn’t as significant; it’s the revolving accounts (credit cards) you need to watch.

You can sum up the question this way: Opening a new credit account can lower your credit scores, but not always. In many cases, applying for credit it will have no impact to your credit score at all. However, excessively applying for credit will likely lower your credit scores.

Read more about the five criteria used to determine your credit scores
.

Not sure where you stand? Check your credit reports and scores online today!



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