How does this work? New account question...

[Anonymous]

Not that I am complaining or anything (extremely happy right now) but my score just went up 10 points from a NEW account. I thought if a new account reports it decreases. However theres exceptions right?

But in my case:

I have no other installment loans reporting and;

the company has reported that I've had it open since 8/11 and its been on time every month

So is this why I am seeing an increase instead? I just want to understand the way credit works. Thanks all!

[pizzadude]

This is your FICO score, correct ?   If not then ignore it because FAKO scores can't be correlated back to FICO scores.

[RobertEG]

The date of 8/11 most likely has nothing to do with a score increase, as it is still a recent new account.

New account addition has both pluses and minuses.  The minuses are that it reduces your average age of accounts, and also usually have a new inquiry associated with approval.

The plus is that, once reported, the new credit limit on the account is then used in calculating your overall % util of revolving credit.

If you had, for example, existing credit cards with a combined credit limit of $1,000 and a combined balance of $400, you would have an overall % util of 40%.

If the new card had a $1,000 credit limit, your new % util would instantly drop to 20% (providing, of course no balance on the new account).

Additionally, FICO also likes to see plural revolving lines of credit.  If the new account was only your second CC, then you would most likely gain a few points by having multiple revolving lines of credit now reporting.

[Anonymous]

RobertEG,

This an installment loan, not a CC. Do the same guidelines of utlization and credit limits apply for an installment loan? In total I have 3 installment loans now, the new one and 2 other additonal student loans. Mainly what I am getting at is that it's nice to see an increase because of the new installment loan rather than a decrease but I wanted to make sure there was no decrease in sight because of this either?

[Anonymous]

Yes this my Fico, straight from here

[RobertEG]

FICO does apparently score balance owed against loan, but it is obviously not a percent util against a CL.

What is pretty well established is that FICO places much less emphasis on the scoring of utilization of installment accounts, as they are not the first predictor of liklihood of payment default.  So, no, the remaining balance against loan amount is not a big concern.

Many consumers get a point boost for new installment loans due to the improvement in showing of a mix of both revolving and installment credit.  However, I doubt that is the case for your situation, since you already have multiple installment accounts. 

Other than the potential increase by the addition of mix of credit, which is apparently not the reason in your case, new installments would usually result in a score decrease.  Most new installment loans are at or near full loan balance, almost by definition, so represents debt, even if  secured, upon which the consumer has not yet built significant equity.

They reduce AAoA, so I am also having a hard time putting a finger on what would cause your new installment loan to improve your credit risk scoring.

[Revelate]

Ah, I think the OP mentioned it was the first installment loan.

New installment loans have an initial hit absolutely: you just increased your debt, there's another inquiry that everyone hates so much, and you have no payment history on it at all.  This one just started reporting... 3-5 months is probably right around the break-even mark for an installment loan (inquiry aging, you have some more payment history and you've had a chance to go up to 90 days late on everything else if you couldn't make the payments... but you're still doing fine) and in your case: you got an installment tradeline which you didn't have at all previously, so you're getting a bonus for having a better mix of credit now too.

Unfortunately this is overly simplistic, first installment loan almost assuredly is a rebucketing event which now makes everything even more complex.

End of the day, just be happy your scores are trending upward over time and go with it .