@FireMedic1 wrote:
@Anonymous wrote:
When you’re on a clean scorecard, when you open a new account you take a penalty and then you receive points back depending on profile at certain thresholds. And then it’s commonly believed you change back scorecards when your youngest account ages to a year.
So basically you take a ding for opening up a new account when you’re on a clean scorecard and you don’t fully recover until a year. If you’re on a dirty scorecard you don’t take that ding.
So on a dirty scorecard this process doesn’t happen because you stay on the dirty scorecard. So another words you can open as many accounts if you want without suffering dings for youngest account.
Huh?
Sorry @FireMedic1
Somehow I missed this in notifications.
OK, you gotta understand scorecard segmentation (bucketing). First is whether a file is clean or dirty.
If clean, then > thick/thin > aged/nonaged > new accounts/no new accounts. This is how scorecard is determined. So, if a file is clean, the last segmentation step to assign the scorecard is whether you have any revolvers under a years age (FICO 8). So, when you app for a new account, you take the HP ding (assuming the HP is not binned or the maximum HP penalty has not been reached). Then, when it hits your CR, you experience scorecard reassignment.
You go from a "no new accounts" scorecard (assuming you had no revolvers < 12 months of age) to a "new accounts" scorecard. This is where the new account ding is felt and usually lowers score. (This is also why if you open another revolver before your youngest reaches 12 months, you don't take the AoYA hit.) Simultaneously, the AAoA hit is included when reassigned to the new scorecard (rebucketing).
Now, if on the other hand the file is dirty, it does not progress down the same scorecard segmentation path. There is no segmentation based on the presence of a new revolver under a years age for dirty profiles. Instead it is believed the next step is whether a public record is present. Then the final segmentation step for a dirty file is based on severity or age of the derogs, IIRC:
Dirty > PR/no PR > more severe/less severe. So when a dirty file apps for a new revolver, the HP ding applies (assuming the HP is not binned or the maximum HP penalty has not been reached). Then when the new account is reported, the AAoA hit takes place (may cause ding if a threshold is crossed). No "new account penalty" occurs, as there is no scorecard reassignment, which is where the penalty derives from.
So the "new account penalty" isn't a "ding" per se, but a result of a profile's score being generated via a different scorecard that is designed to evaluate at a higher risk. The data shows new accounts cause a profile to be higher risk. That's why lenders don't like new accounts and it is considered to raise the risk level high enough that FICO has devoted scorecards especially for clean profiles with new accounts.
Why isn't there such segmentation and cards for dirty profiles? IDK, but it has been opined that the dirty scorecard already sufficiently penalizes profiles for the higher risk associated with those profiles. So I guess the scores are already hit hard enough by the dirty scorecard's algorithm.
The above is what I have learned mostly from this forum. If one would like to delve deeper, there are countless threads on scorecard reassignment, rebucketing etc.... The ones from Thomas_Thumb are especially informative and enlightening. There was an especially good graphic I'm gonna see if I can locate and link.
Also, be aware that versions other than 8 may have a different threshold for new accounts. Also, be aware that we are learning and adding to the knowledge base all the time. There is certainly more to the segmentation process and surely much we don't know, but this is the best comprehensive explanation I've found thus far, until we have figured out more conclusively.
As we learn more, this may need to be revised based on new findings. But until we know more, this is basically the "common wisdom" of the forum, based on reading countless threads.
Another supporting point: we know negative reason codes are generated by the algorithm and definitely point to attributes that are holding score down. This is not in dispute. With this said, there are negative reason codes for new accounts on clean scorecards; however, you will never see such a reson code on a dirty file. Why? Because a new account does not penalize a dirty file, of course! They were already penalized sufficiently for being high-risk when segmented into a dirty scorecard.
Hope this helps to understand the process as I know it from the knowledge I've acquired here. Also, be aware the segmentation path may be different for different versions. And I believe the Industry Options take the result of the Classic version's scorecard results and then run it through the Industry Option scorecard's algorithm.
