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Home Credit Scores New Credit: What It Is and How It Impacts Your Credit Score

New Credit: What It Is and How It Impacts Your Credit Score

Unveiling a new credit card on a pedestal

At a glance

Opening new credit accounts has a relatively small effect on your credit, but you should still be aware of it. Read to learn what new credit is and how opening a new credit card affects your credit score.

Written by Jesslyn Firman and Samuel Osbourne

Reviewed by Robert Jellison

Dec 8, 2021

Fresh advice you can trust

We promise to always deliver the best financial advice that we can. That's our first priority, and we take it seriously. Our writers and editors follow strict editorial standards and operate independently from our advertisers and affiliates. Learn more about how we make money.

Table of Contents

  1. What is new credit?
  2. How does opening a new credit account hurt your credit?
  3. How opening a new account can improve your credit score
  4. When should you apply for new credit?

What is new credit?

“New credit” has two meanings in the credit industry. It often just refers to new credit accounts, i.e., credit cards or loans that you recently took out. However, “new credit” is also the name of one of the factors that the FICO and VantageScore credit scoring models use to calculate your credit score. In this context, it’s sometimes also called “pursuit of new credit.”

How new credit influences your FICO credit score

New credit is one of the less influential factors in the major scoring models. It affects just 10% of your FICO score.

Pie chart showing how much new credit influences your FICO credit score
New credit is one of the least influential factors used to calculate your FICO credit score.

How new credit influences your VantageScore credit score

New credit affects 5% to 11% of your VantageScore (depending on whether your lender uses VantageScore 3.0 or VantageScore 4.0). It’s slightly more influential in the newer VantageScore 4.0 model.

Pie chart showing how much new credit influences your VantageScore credit score
New credit is one of the less influential factors used to calculate your VantageScore credit score.

What contributes to the “new credit” scoring factor?

According to FICO, the new credit category considers: 1

  • How many credit accounts you’ve opened recently
  • How many hard inquiries (credit checks) you’ve triggered
  • How long ago you last opened a new account

How does opening a new credit account hurt your credit?

When you open a new credit account, such as a credit card, you’ll usually see a small and short-term drop in your credit score. This happens for two main reasons:

1. Applying for new credit triggers a hard inquiry

When you apply for new credit, your lender will usually check your credit report, at which point you’ll receive a hard inquiry (or a “hard pull”) on your credit report. Hard inquiries take a few points off your credit score—around 5 points off your FICO score and up to 10 off your VantageScore. 1 2

Frequently applying for credit can drop your score because you’re triggering multiple inquiries. However, the scoring models usually count multiple inquiries of the same type as a single inquiry if they appear on your credit report within a short period, which makes it possible to shop around for loans without damaging your credit score too much.

New credit inquiries only appear on your credit for a short time

Hard inquiries appear on your credit report for two years, after which point they naturally fall off. 3

Hard inquiries affect your credit score for a much shorter period. FICO only considers inquiries from the past year, and VantageScore says hard inquiries no longer impact your credit after six months.  3 4

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Check how many new credit inquiries are already on your credit report

Get a free copy of your credit report from AnnualCreditReport.com to see how many hard pulls you’ve received. If there are several inquiries on your report, consider waiting a few months before you open a new credit account.

2. Opening new accounts lowers your credit age

The length of your credit history affects your credit score. In general, if you have a longer history (which is primarily determined by the average age of your accounts) your score will be higher.

Opening a new credit line lowers the average age of your accounts, which in turn hurts your credit score.

Your credit age is also a relatively unimportant scoring factor (constituting around 15% of your score in both FICO and VantageScore’s models) which means that the damage won’t be too severe unless you open a lot of accounts in a short period of time. For this reason, it’s best to only apply for new credit cards and loans when you really need them.

How opening a new account can improve your credit score

Although it can damage your credit score in the short term, opening a new credit account can actually improve your credit in the mid-to-long-term, provided you manage your credit responsibly.

When you open a new account, you can:

Improve your payment history

Your payment history counts for 35% of your FICO score, so opening a new credit account and establishing a record of timely payments is one of the best ways to boost your score. This is especially true if your credit history was previously relatively thin (i.e., if you didn’t have many credit accounts).

Lower your credit utilization

Opening a new credit card will affect your credit utilization rate (also known as your debt-to-credit ratio). This is the percentage of your available credit that you’re actively using.

Experts recommend aiming for a credit utilization rate under 30%, and VantageScore says that a single-digit ratio is ideal. 5 Consumers with the best FICO scores have an average utilization rate of 6%. 6

Opening a new card increases your credit limit. As you don’t overspend on your card, this will lower your utilization rate and boost your score.

Diversify your credit mix

The credit scoring models also reward you for having a good credit mix—in other words, for managing a variety of accounts. If you only have an installment loan (like a car loan), opening a revolving account (like a credit card) will boost your score, and vice versa.

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That said, if you already have several credit cards or loans, adding another account of that type probably won’t benefit you.

When should you apply for new credit?

The best approach is to only apply for new credit when you need to and to make sure you always have a plan in place to repay your debt. That way, you won’t rack up too many hard inquiries and you’re less likely to miss payments.

Takeaway: Only open new credit accounts when you need to

  • New credit is one of the least important scoring factors. It only counts towards 10% of your FICO score.
  • Three factors determine how you'll score in the new credit category: how many new accounts you have, how long ago you last applied for credit, and how many hard inquiries are on your credit report.
  • Opening a new credit account hurts your credit in some areas but helps it in others, so your score shouldn’t suffer a major drop.
  • Each time you open a new credit account, a hard inquiry will appear on your credit report and take a few points off your score. You'll also lose points because your credit age will fall.
  • Opening a new credit card can boost your credit score because your available credit will increase, which in turn will drop your credit utilization. New accounts can also help you to earn more points in the payment history and credit mix categories.

Article Sources

  1. myFICO. "What is New Credit?" Retrieved December 8, 2021.
  2. VantageScore. "How Much Does Applying for Credit Really Hurt Your Credit Score?" Retrieved December 8, 2021.
  3. myFICO. "Credit Checks: What are credit inquiries and how do they affect your FICO® Score?" Retrieved December 8, 2021.
  4. VantageScore. "8 Things That Won’t Hurt (Whew!) Your Credit" Retrieved December 8, 2021.
  5. VantageScore. "Debunking a credit score myth: Forget what you’ve heard. Use much less than 30% of your available credit card limit" Retrieved December 8, 2021.
  6. FICO. "Understanding FICO score" Retrieved December 8, 2021.

Jesslyn Firman

View Author

Jesslyn Firman is a credit analyst for FinanceJar. Her work covers credit repair and credit scores, and in the past she's extensively researched and written about the insurance industry. Jesslyn has a B.S. in Finance and Accounting and an MBA in Management.

Samuel Osbourne

Content Writer

View Author

Sam Osbourne is a content writer for FinanceJar. His writing covers credit scores, credit repair, and renters insurance. He’s worked across a mixture of genres, including blogs, essays, and fiction. Sam has a Master’s degree in Creative Writing.

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