Opening a new credit account is one way to increase your available credit, build your credit history, and add more information to your credit report. But before you open a new credit account, it’s important to understand how doing so can impact your credit score. Your credit behavior, including opening new accounts, can impact where you stand on the credit score scale.
How long is an account considered “new” on my credit report?
After about one year on your credit report, an account is no longer considered “new credit,” depending on your credit behavior and borrowing history.
To see how your credit report changes after you open and begin to use a new account, you may want to consider monitoring it regularly. You’re entitled to one free credit report every year from each of the three credit reporting agencies through AnnualCreditReport.com. You can also purchase a credit monitoring product to access your credit report more often.
What are some of the ways opening a new account can impact a credit score?
A new credit account can diversify your credit mix. If you’re opening a new credit account that is unlike others you already have, you’ll diversify your types of credit used, which can impact your credit score. Creditors like to see that you are able to manage different types of accounts responsibly. Your credit score reflects the different types of accounts you have, including revolving debt (such as credit cards), and installment loans (such as mortgages, student loans, and auto loans).
A new account can shorten your average account age. New credit accounts can impact the length of your credit history, which accounts for 5 to 7 percent of your Equifax credit score. This calculation includes how long both your oldest and your most recent accounts have been open.
A new account will generate an inquiry. Each time you apply for a new credit account, it generates a “hard inquiry,” which is a request by a creditor for your credit history . Hard inquiries remain on your credit report for 24 months , and their impact on your credit score can lessen over time . (Your credit score does not take into account requests from creditors for your credit report or credit score in order to make pre-approved credit offers or promotional offers.)
Inquiries and new credit accounts may have a greater impact on someone with a short credit history and few accounts than on someone with a longer credit history.
Regardless of whether an account is new or has been open for some time, a priority should be ensuring payments are made in a timely fashion. Payment history accounts for 35 percent of your credit score, so paying your bills on time—or late—will have an impact. While an account may not be considered “new,” payment history on that account will always be factored into your credit score.
Diane Moogalian is vice president of operations for Equifax Personal Information Solutions. Prior to joining Equifax in 2007, Diane held several strategic roles with leading financial services companies.