"accounts opened in past year" - impact on score?

[Anonymous]

I started my credit rehabilitation in April 2007. In April, May and June I opened up a total of about a dozen accounts as my FICO got out of the doldrums. I know that having so many new accounts had an impact on my score.

Now that we are over the 1 year mark, I am aware that these accounts will age even more and my score should slowly rise...what sort of impact will that have? What % of the score is for new credit? Everything else being equal, should I start to see slow steady rising scores?

thanks

[Anonymous]

10% of your score is based on new credit, and this 10% also includes inquiries for credit you may or may not have actually received.

Yes, all else equal, your scores will steadily climb as your accounts age.

[RobertEG]

It is not the 10% new credit category that is now of concern to you, it is the 15% length of credit history category.  The inqs not longer count after a year.  Credit history is aging.

The impact of all the new accounts depended upon  your avg age before opening them,l and if your credit history was short at that time, they had little effect.

However, that is a moot point now, for they are now open.  Their affect will not be much in the next few years,  but major benefit will be seen several years from now when you reach 5-7 years of history on several accounts.  A good move for long term credit building.

[johnpalley]

is it only bad to open up a new credit card account or does that count for loans to? i just opened a secured loan to build credit and because its secured i didnt get an inquiry. i wanted to take out a loan because i know that your score is also about balanced credit. i have 4 credit cards that are 2 years old and now last week i got the secured loan. does anyone know how this new loan will effect my credit?

[Anonymous]

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johnpalley wrote:
is it only bad to open up a new credit card account or does that count for loans to? i just opened a secured loan to build credit and because its secured i didnt get an inquiry. i wanted to take out a loan because i know that your score is also about balanced credit. i have 4 credit cards that are 2 years old and now last week i got the secured loan. does anyone know how this new loan will effect my credit?

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Any new account will bring down your average age of accounts, regardless of what kind of account it is.  How much it will affect your score depends on how badly your average age is affected by the new account.

[RobertEG]

Johnpallley, welcome, and i hope we can help you a bit.

So many latch onto these forums, and suddenly think that building immediate FICO scoring should become their financial plan.  Remember that this is a FICO forum, and not a financial advice forum.  We teach FICO building, and not financial strategy.  The are not the same.

There are so many, many factors to consider when deciding to take out a new TL, either revolving or installment, that the answer is always the dreaded.. "it all depends!"

First and foremost, IMHO, is to first do a full evaluation of BOTH your financial plan, and your FICO plan.  They often lead to different decisions.

From a financial consideration, taking out a new install loan puts more debt upon you, and thus more iinterest out of pocket each month.  If it is not for a purchase that you truly need, such as a new car, then it makes no finanacial sense.  It raises your debt.

But your FICO plan may lead you to a different path.  A new install loan, particularly if you have no existing install loans, will improve your credit mix.  But that is only 10% of FICO, and also at the same time hurts your credit util category of FICO by adding install debt at a high util.  Install debt is not weighed as much in credit util as revolving (credit card) debt, but it still counts.  The new inq needed to get any new credit only scores for one year, and thus will be meaningless as to whether it resulted from a hard or soft pull a year from now.

In making the short term decision as to following your financial or FICO plan, the basic question is simply...  do I NEED to apply for new credit in the immediate future?  If not, FICO is just a number, and not money out of your pocket.

From both a financial and FICO perspective, taking on new credit/debt is usually not the best path unless it is necessary.

But if you are taking out new accounts, either install or revolv, for the purpose of improving your length of credit history years from now, then that is a long term, and potentiall positive, FICO strategy, but not a short term one. 

It all depends....

Message Edited by RobertEG on 05-23-2008 11:27 PM

Message Edited by RobertEG on 05-23-2008 11:31 PM

Message Edited by RobertEG on 05-23-2008 11:33 PM

Message Edited by RobertEG on 05-23-2008 11:37 PM

[johnpalley]

RobertEG, so lets say worse case senario my credit score goes down from the loan. if that happens can i just pay the whole loan off rigt away and then the account will be closed and the score will be what it used to be at? i got the loan to build credit short term because im trying to buy a house.

Message Edited by johnpalley on 05-24-2008 11:10 AM

[Anonymous]

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johnpalley wrote:
RobertEG, so lets say worse case senario my credit score goes down from the loan. if that happens can i just pay the whole loan off rigt away and then the account will be closed and the score will be what it used to be at? i got the loan to build credit short term because im trying to buy a house.

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I'm not RobertEG, but hopefully my answer will suffice, at least until RobertEG can give a more complete answer.

No, paying off a loan right away will not remove it from your reports; nor will it ever help your age of accounts.  Once you have a loan and it begins to report, it will generally continue to report for up to ten years after it is closed.  For as long as it reports, it will continue to count in your average age of accounts so there is no way to bring your average age back up simply by closing it or paying it off.

In fact, you usually want to take the exact opposite tack with an installment loan.  Once it's there, the damage is done as far as age of accounts is concerned, and the longer you take to pay it off, the more positive payment history you will accumulate, which is good for your score (assuming you make your payments on time, every time).

[johnpalley]

cheddar, how is this possible? it makes no sense. are you positive that there not talking about open accounts? i have some accounts that i closed 8 years ago that are still on my credit report. so your trying to say that those old closed accounts are being counted as far as age of accounts goes? it just doesnt make sence

Message Edited by johnpalley on 05-24-2008 02:00 PM

[Anonymous]

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johnpalley wrote:
cheddar, how is this possible? it makes no sense. are you positive that there not talking about open accounts? i have some accounts that i closed 8 years ago that are still on my credit report. so your trying to say that those old closed accounts are being counted as far as age of accounts goes? it just doesnt make sence

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Yes, I am positive.  It makes perfect sense actually.  The longer you have had credit, the less of a risk you are.  Why would that metric be limited to open accounts only?