If Credit Is Approved Does Your Credit Score Drop?

A credit approval means someone found your credit history worthy enough to extend a new line of credit. This new account may or may not drop your score. Your credit history contains dozens of items that can have a host of effects on the credit scoring system used in America. As long as you use a new account responsibly, it will likely have a positive effect on your score eventually.

The Credit Check

Regardless of approval, any application for a line of credit usually requires consent to a hard credit check by the lender. This usually drops your score between zero and five points--higher if you have excellent credit above 760. Overall, a hard inquiry is fairly meaningless to a score, but six or more credit checks in any 12-month period tend to signify a potential high risk to future lenders.

Considerations

The effect of a new account depends in part on the type that you open. Installment accounts always add debt to your profile, so your score probably takes a hit to the "amounts owed" category. Also, you lower the average age of your accounts--worth part of the 15 percent "length of credit history" category. If you opened other accounts recently, you could damage your "new credit" category, worth 10 percent of your score.

Potential Boost

Your score might see a boost of a few dozens points if you add a new type of account to your profile. The FICO model gives a 10 percent weight to using a variety of accounts. You should have a few revolving accounts, such as a credit card, for every installment loan. Also, adding a credit card, and not carrying a significant balance automatically lowers your credit utilization ratio--balances outstanding over your total limit.

Tip

Adding an account to your credit history usually does no harm when you have a perfect credit history of never missing a payment or carrying much debt. Continue along the path to repaying debts on time, and the account likely only boosts your score in time. However, you should not take out more than one or two new loans each year if you want to have excellent credit at all times, especially all at once or close to each other.