New Credit Opened: 10% of FICO

[Anonymous]

Hi, all, I'm relatively new to having a credit score, haven't even had a FICO for a year yet. 

Anyway, I was wondering if opening new credit positively or negatively impacts your FICO score. Over the Past month I've applied for and been approved for 4 new credit cards, adding a total of $6,900 credit line across all the cards to what was only a limit of $1,000 on one card.

I don't plan on adding any more in the forseeable future, I just figured even though it's bad to apply to multiple cards simultaneously, there were no hard pulls so I might as well take advantage of my score if adding a card or two would lower it initially. I'm also familiar with the standard of having one card report a balance of less than 10% of the credit line while having a $0 balance on all other cards by the statement reporting date.

Any advice or tips would be greatly appreciated!

Thanks much, Ryan

[Anonymous]

"FICO's scoring model treats new accounts as a negative for your FICO score. 

How negative? It depends on the length and breadth of your credit history. However, the scoring impact of opening one new account should be the same for any type of loan, whether it's a car loan, a credit card or something else."

I found this here.

[Anonymous]

I am in a similar situation, my oldest US card is 8 months, and I opened 6 cards in that time. I figured that in reality I'm getting hammered for the full 10% new credit penalty no matter what I do, so I might as well go on a spree. 

Yes it's a negative SHORT TERM. But in the long term it's a plus -- so long as you don't get yourself in trouble (you pay your bills, don't run up debt) what will happen to us in the long run is this slate of cards will significantly bolster "Average Age of Account" in the long run. So right now we're getting killed on new credit penalty, but think about 2 years from now -- all those cards will be 2 years old. If you then open up a 7th account, say, a car loan, the impact on average age of that will be tiny -- AAoA will drop by only about 15% because that raft of old cards will weigh down the average.

So yeah, we're paying a new account penalty for now. But that wears off, and then the accounts will start to help and we'll be in a good place.

My $0.02 anyway.

[lg8302ch]

Welcome to MyFico forum

Yes you get a small ding for an inq which stays on your report for 2 years but does not count for Fico scoring after 1 year anymore.  Then each new account is considered new for Fico scoring purpose  for 2 years and gets kind of a punishment for this. With time it lowers the impact similar to the inq. With each new account the AAoA usually takes a hit and that is also a factor that plays a role in scoring. A new account can also lead to a positive result for example the lower utilization because of the added CL. Since utilization has a heavy weight  for scoring different results will happen to each profile. When you start I would recommend to start with max 3 accounts and build history with these first. And then try to build with better cards. Avoid to add a ton of SCT with low limits. IMO this is not helping.  It might help with AAoA but I doubt with higher CLs on new accounts.

There is some useful info in this Fico brochure here

[Anonymous]

Thank you for your replies! I feel welcomed already =] I'll see how much my fico drops in a few days. I didn't even think about the average age of accounts, but that makes sense. I always pay on time and have never paid interest yet so I'm not too concerned about that.

Another concern I had is that someone told me when you go to get a loan they may compare your total available credit with your income and may deny the loan if you have too much credit available for the amount of income you have. Is this true? Or is that only a factor if I'm running balances on those credit lines?

[jamie123]

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@Anonymous wrote:
Thank you for your replies! I feel welcomed already =] I'll see how much my fico drops in a few days. I didn't even think about the average age of accounts, but that makes sense. I always pay on time and have never paid interest yet so I'm not too concerned about that.

Another concern I had is that someone told me when you go to get a loan they may compare your total available credit with your income and may deny the loan if you have too much credit available for the amount of income you have. Is this true? Or is that only a factor if I'm running balances on those credit lines?

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Yes, the credit card minimum payments will be calculated into your DTI (Debt to Income) ratio to find out how much of a monthly loan payment you can afford. The amount of credit that is available doesn't really count. It happens sometimes with mortgage loans and if it is brought up at that time you know the mortgage lender isn't very good and you should go elsewhere.

New credit in FICO terms is any credit that has been opened in the past 2 years. You get the ding when you open the account and it will slowly go away over a period of 2 years.

[Anonymous]

I see, thank you for the heads up!

[Anonymous]

Does anyone have any data on what is actually meant by "slowly goes away over a period of 2 years"?

Are there tiers, like 3/6/12 months? Or is it a straight line reduction in the new account penalty?

And does this apply to inquiries? Or strictly the new account age?

Outside some CLI's I plan to do, I'm done with opening new credit and I am curious what I can expect next.

[Anonymous]

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@lg8302ch wrote:

Welcome to MyFico forum

Yes you get a small ding for an inq which stays on your report for 2 years but does not count for Fico scoring after 1 year anymore.  Then each new account is considered new for Fico scoring purpose  for 2 years and gets kind of a punishment for this. With time it lowers the impact similar to the inq. With each new account the AAoA usually takes a hit and that is also a factor that plays a role in scoring. A new account can also lead to a positive result for example the lower utilization because of the added CL. Since utilization has a heavy weight  for scoring different results will happen to each profile. When you start I would recommend to start with max 3 accounts and build history with these first. And then try to build with better cards. Avoid to add a ton of SCT with low limits. IMO this is not helping.  It might help with AAoA but I doubt with higher CLs on new accounts.

There is some useful info in this Fico brochure here

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Best explanation I've seen. Ang great link.