Will Opening a New Account Raise or Lower My Credit Score?

Before you open a new credit card, I’m sure there are a number of factors that you take into consideration. Perhaps you really need the increased credit limit or maybe the card offers certain perks that you hope to benefit from. Whatever the reason, before you open an account, there’s something you should know – new accounts can have an impact on your credit score. They can influence as much as 10% of your score, but the actual impact depends on your overall credit, as well as the type of account you are opening.

Firstly, opening a new account reduces the average age of your credit accounts. A full 15% of your score depends on your credit age – calculated using the age of your oldest account and the average age of all your accounts. Thus, opening a new account can slightly ding your score by lowering your average credit age.

Secondly, when you place an application for a credit card, it will result in an inquiry. This may or may not reduce your score, depending on the number of inquiries already present on your report. For example, if it’s the holiday season and you’ve applied for numerous cards to increase your credit limit, you will find that it has a negative impact on your score. This is because more inquiries indicate higher risk.

Thirdly, if you open a new account and make a huge charge in it the same day, your credit utilization will shoot up. Credit utilization makes up 30% of your credit score, so the greater the amount of total credit limit you use, the greater the negative impact on your score. You should be especially careful if you’re opening a new store credit card to take advantage of a particular discount. Such cards are known for their low limits, so the moment you put a big purchase on them, your credit utilization ratio will increase.

Having said that, opening a new credit card can also be beneficial for your score. For example, if you open a new card and then don’t use it to purchase anything, you’ll likely find that your credit has improved. This is because your credit utilization ratio is reduced due to an increase in the amount of total credit available to you.

Secondly, the ‘types of credit’ that you have constitute 10% of your credit score. For example, if you have a mortgage, a bank loan, and a car loan, a new credit card may add diversity to your profile by showing that you can handle a variety of loans. Thus if you have only a couple of bank credit cards, adding another one to your profile can improve your score in this area.

Thirdly, if you have a damaged score due to past delinquencies and write-offs, a new card can help you improve your credit standing. But for this, you need to use it in a responsible way; you must not charge more than you can afford to pay off, and you must always pay your bills in full and on time.

Thus, new credit cards can lower, increase or have no impact on your credit score. Moreover, even if there is a slight ding to your score due to a reduction in the average credit age, you can easily make up for it in the subsequent months by keeping credit utilization low and paying bills on time.

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At Fund&Grow, we offer clients as much as $250,000 of unsecured credit at 0% interest that you can use for any purpose, from business financing to a down payment for your home. If you would like to receive similar funding, please call us at (800) 996-0270.