New Account Effects

Anonymous · ‎07-21-2010

Hi all,

How does opening a new account adversely affect your score? I know it brings down the AAoA, but does it have a negative effect other than that? Is it considered a negative thing in and of itself? Could the benefits of decreasing your utilization offset the negative effects on your AAoA? I opened a new CC recently which will bring my AAoA from 5.4 years to 5.1 years. Since I read somewhere that the years are rounded down, will this even affect my AAoA at all? Thanks in advance for any clarification.

vanillabean · ‎07-21-2010

Yes, it's interesting that your AAoA is rounded down while your oldest account is not. I don't know why.

I have read that your first inquiry will not bring your score down, but the second will (5 or 10 points). Same pattern for third and fourth.

But I do know one thing. Lowering your util can be a tremendous score booster, which can easily offset inquiries from getting cards often.

When that is said though, card applications look at both your score and your inquiries. I have heard of people in the 800s having been denied cards due to inquiries.

The Long, Twisted History of Your Credit Score

llecs · ‎07-21-2010

Aside from any AAoA drop, and it is measured in whole numbers as mentioned, and aside from any inquiry damage (YMMV based on your scoring bucket), you are dinged for the new credit. On average I have lost 20-25 points per new CC. Many of those points return in about 6 months after it reports and the remainder have returned within a year. In fact, many see small increases after their new TL hits one year old. YMMV based on many factors like utilization changes, mix of credit, other new TLs reporting, scoring bucket, etc.

Anonymous · ‎07-21-2010

@Anonymous wrote:
Hi all,
How does opening a new account adversely affect your score? I know it brings down the AAoA, but does it have a negative effect other than that? Is it considered a negative thing in and of itself? Could the benefits of decreasing your utilization offset the negative effects on your AAoA? I opened a new CC recently which will bring my AAoA from 5.4 years to 5.1 years. Since I read somewhere that the years are rounded down, will this even affect my AAoA at all? Thanks in advance for any clarification.

To answer your question the second factor is that you have taken on more credit. You have taken on more risk. You are currently unproven with this new credit. If you take the new credit and manage it responsibly in the coming months you should see your score go back to where it was if you have taken a dip.

Your aaoa is still in the same range so i doubt that will play a big roll, that's basically a very small percentage of the 15% of which fico considers aaoa. Being that it's still in the same range of 5.0-5.4 i don't think that will factor in much.

New credit however is 10%, which is smaller than account history however your affecting that 10% to a much larger extent.

The utilization question all depends on what credit limit you get approve for, what is your current utilization, and what percentage of utilization does the amount of new available credit brings you to.

Say for instance you had 3,000 in total available credit and you were using 1200 of it. You would be using 40% of your available credit. If you get approved for a 1000 cl with no AF than you would be now using 1200 of 4000 which is 30% bringing down your percentage by a full 10 points.

I'm not sure exactly how that 10 point s will help with your amounts owed (utilization on revolving accounts). I would think that would result in somewhere up to a five point pick up. Not to sure about how it's factored but someone else can chime in on that.

edit: the five points is just a guess albeit it may be a bad one. prolly shouldn't have mentioned it but i was hoping somebody would wanna add how much that would swing the fico per say so we can all be a little more informed.

Anonymous · ‎07-21-2010

@Anonymous-own-fico wrote:

When that is said though, card applications look at both your score and your inquiries. I have heard of people in the 800s having been denied cards due to inquiries.

Ok admittedly i didn't see llecs answer when i first started typing... but to this point alot of the time they get denied because their credit is too good and they don't offer a profit margin to the ccc's. They'll pick some crazy reason out of a hat to explain the denial. There is currently an article about that in credit news in which a lawsuit is in place because of that.

llecs · ‎07-22-2010

@Anonymous wrote:

Ok admittedly i didn't see llecs answer when i first started typing...

Yay...for once I'm the faster typer.

vanillabean · ‎07-22-2010

@Anonymous wrote:
@Anonymous-own-fico wrote:

When that is said though, card applications look at both your score and your inquiries. I have heard of people in the 800s having been denied cards due to inquiries.

Ok admittedly i didn't see llecs answer when i first started typing... but to this point alot of the time they get denied because their credit is too good and they don't offer a profit margin to the ccc's. They'll pick some crazy reason out of a hat to explain the denial. There is currently an article about that in credit news in which a lawsuit is in place because of that.

I read the article yesterday and was reminded of some years ago when "The Golden Girls" was cancelled. It wasn't because the sitcom didn't have a large audience. It was because it to a considerable extent consisted of a segment of the population that doesn't spend a lot of money and didn't respond well to the commercials.

Still, the article conceeds that it's relatively rare that you get denied for having a high score. People in the 800s do yield some revenue of course, and you should still stick to aiming for a high score.

It is also worth noting that the median score is now much higher than it used to be. Add a mere 50 points to today's median, and you have a great score.

The Long, Twisted History of Your Credit Score

Anonymous · ‎07-22-2010

I get what your saying but there is no reason for a company to deny someone with excellent credit (credit in the 800's) and hand out a card to someone in the 600's if it's not for that reason.

There just isn't a factor that's gonna scare them off i'm srry. There absolutely no justification to the fact that they may feel that there is evidence that lower score holders on average will pay on time every month.

Yes i also caught the part about the merchant fees, which is unavoidable for the merchants (the dodd act intends to lower that) because alot of people are gonna pay with plastic and if you deny them that they will simply go somewhere else that accepts plastic. Many ppl do not like to walk around with cash and not enuf vendors are taking checks. So they will pick up merchant fees with everyone. I am in total agreement with you.

However passing a card to someone with less than stellar credit and denying someone with excellent credit could and would only be done if you are trying to attain customers who will rack up fees. that's all there is to it.

Anonymous · ‎07-22-2010

Thanks for the info. I guess it's hard to predict how all the different factors will come into play until you actually see your scores. Lucky for me (ha!) I have a long way to go before I have to worry about getting turned down because of 800 scores.