How Much Does Opening a New Account Affect My Credit Score?

It’s understandable to be concerned about your credit score being affected when opening a new credit account. In your research, you probably want to weigh your options to not only compare which account will get you the lowest interest rate for loans (for highest return on savings), but also if opening the account will affect your credit score.

"So...how much does opening a new account affect my credit score?"

This was my question when I applied for a credit card and didn’t want my credit score to drop tremendously after working hard to increase it because of a hard inquiry.  

Here’s what you should know so you’re not surprised when you give the lender permission to run a hard inquiry on your financial background and open an account. . 

how much will my credit score change when opening a new loan?

Your pursuit of new credit (including credit inquiries and the number of recently opened accounts) affects 10% of your FICO score  and 11% of your VantageScore.   According to MyFICO, “opening new credit lowers the average age of your total accounts. This, in effect, lowers your length of credit history and subsequently, your credit score. New credit, once used, will increase the ‘amounts owed’ factor of your credit score.” Similarly, VantageScore states, "Your credit age is calculated by averaging the ages of your open credit accounts. Opening new accounts can also help or hurt your scores in different ways.

So, applying for the new credit, opening the new credit account, and using it all affects your credit score. 

When applying, the hard inquiries can shave your score down a few points (typically 5 points) but this may vary. Why? Because everyone's history isn't the same.  The affect will vary on how strong your current credit score is.

Although hard inquiries don’t keep your credit score down forever (it usually increases after a few weeks), it stays on your credit report for two years.  Hard inquiries serve as a timeline of when you've applied for new credit and it. 

why do hard inquiries affect my credit score? 

As much as I hate to say it that's just how the Credit Bureau does things. A hard inquiry gives lenders an indication you’re looking to open a new line of credit. If you shop around too much, it’Il negatively affect your chances of opening a new loan since lenders don’t want to see too many trade lines open.

Is it worth opening a new credit account?  In my opinion, yes! Although your score will be shaved down a few points, it won't be like that forever. If you properly manage your new loan, you'll see your credit score increase. Plus, you'll have more credit at your disposal if you need. Here are some things you can do to increase your credit score. 

• Keep Balances Low: On revolving credit, such as a credit card, make sure to keep your balance low. You should also try to keep your utilization under 30%.
• Pay On-Time: Missed or late payments can have a major negative impact on your score. A 30-day late payment could decrease your score by 60 points.
• Get Current: If you’re behind on your payments, get current and try to stay current. Your score should increase the more you’re on time.
• Don't Close Cards: Remember, the length of credit history and available credit both play a factor in your score. If you find an old credit card you haven’t used in a while, dust it off and use it for a week to keep it active.

Here's a full run through of what you need to know about your credit score and how to increase it:

does my credit get pulled when opening a checking or savings account?

Depending on the financial institution, like Skyla credit union, a hard inquiry is conducted when opening a checking and savings account. With us, the hard inquiry helps us verify your information, but not all financial institutions conduct hard inquiries. 

While your credit and debt activities affect your credit score, your checking or savings account can affect your credit score for certain things too.

If your account is overdrawn and you do not pay what you owe, many financial institutions report to a system called Chexsystems. Chexsystems is a consumer credit reporting agency that actively tracks related closed checking, savings, and other deposit accounts at financial institutions. You can learn more about Chexsystems and checking accounts here. 

are you ready to open a new account? 

Now that you know what happens when you open a new account, you know that it will depend on how you use that account to help boost your credit score. Everyone's credit history is unique so if you have more questions on how to improve your score you can always checkout understanding credit scores here. 

If you're interested in a loan or just want to know what's available, we have various loan options you can check out. 

As always If you have any questions or comments, our Customer Service Representatives are here for you. You can send an email, give us a call at 704.375.0183, or visit any of our branches.