Does Opening New Accounts Affect Your Credit?

Opening a new account may cause a change in your credit score, depending on the type of account. In most cases, the result of opening a new account will be a lower credit score. By understanding how opening a new account will affect your credit score, you can determine if opening a new account is a good decision.

Bank Accounts

There will only be an impact on your credit score when you open an account that reports to the credit bureaus. For example, opening a savings or checking account will not affect your credit in most cases, as financial institutions generally do not report these accounts to the credit bureaus. If the account includes overdraft protection, the bank or credit union may report account activity to the credit bureaus, and some banks and credit unions will request a copy of your credit report when you open a new account, which will affect your credit score.

Credit Accounts

Opening new credit card accounts or taking out a loan such as a mortgage or car loan will affect your credit, as lenders will report activity on these accounts to the credit bureaus. Not only will opening a new account affect your credit, but simply applying for a new account will also affect your credit. This is due to the lender making a credit inquiry with the credit bureaus. The lender uses your credit report and score to determine whether or not to issue you credit and at what terms.

New Accounts

Credit bureaus use the number of new accounts as one factor in determining your credit score. Information on new credit accounts represents 10 percent of a FICO score. As opening a new account is the only factor making up this 10 percent, the impact of opening a new account is minimal. If you have a high credit score, the reduction from opening one account will be of little significance. If you have some credit problems, the reduction from opening a new account may make it more difficult for you to obtain more credit in the near future. Regardless of the initial impact of opening the account, if you use the new account and your existing accounts wisely by reducing debt and making the payments on time, your credit score will improve over time.

Other Considerations

Though opening a new account may lower your credit score, there are positive effects to consider. A new account will increase your available credit, which will decrease the percentage of available credit that you are using. If your new account is a different type of account than your existing accounts, you may also receive a credit score boost. For example, if all of your open accounts are installment loans, your score may increase from opening a credit card account. While these positive effects will generally not outweigh the negative effect of opening an account, it can help to reduce the impact.