New Credit Determines 10% of a FICO Score –
Like the other 4 key factors, New Credit is all about risk management, and although 10% doesn’t seem like a lot, it is! So what are you doing to help the New Credit factor? What are you doing to hurt it?
One of the most harmful things a consumer can do to hurt their New Credit factor is open several credit accounts within a short period of time. Why? It shows great risk to Lenders. In other words you look desperate. Would you loan money to a desperate stranger?
Alright, so let’s take a look a few ways FICO determines your New Credit factor.
- Number of New Accounts
- Number of Recent Inquires (and length of time since they were made)
- Time Since Opening a New Account
Number of New Accounts
Here are a few ways FICO looks at New Credit accounts.
- types of new accounts (revolving credit, installment loans, secure and un-secure)
- how recently those accounts were opened
- average age of new accounts
Don’t open a lot of new accounts too quickly! Why? New accounts will lower your average account age. Which will have a negative effect on you FICO Score. Especially if you have very little credit history. Learn about Credit History here.
Number of Recent Inquires
Its OK to request and check your own credit report. Checking your own credit report won’t affect your FICO Scores. Just check it from an organization authorized to provide credit reports to consumers.
More to say about Inquiries
An inquiry occurs when a lender request a copy of your credit report. Below are a few myths to consider.
MYTH. Each hard inquiry is 5 points off your credit score.
MYTH. Several inquires will kill your FICO score.
FICO only factors inquiries into your FICO Score from the last 12 months, because not all inquiries are related to credit risk. Example, “rate shopping”. This occurs while you are applying for an auto loan and the dealership makes several inquires to different lenders in order to find you the best rate on your loan. This could result in several inquiries in 24 hours. These inquiries are factored into your FICO Score as only 1 inquiry and sometimes ignored completely by FICO scoring.
Time Since Opening a New Account
Lastly, FICO factors in the amount of time since you opened your last account to the most recent. The further apart these accounts are being opened the better. So what’s too short? As a rule of thumb, it’s a good idea to have 6 months of payment history on your latest accounts.
Avoid rapid fire! If a person truly considers the New Credit factor they wouldn’t get online and apply for a bunch of credit cards, one right after the other, hoping that one of the creditors will extend credit to them. This simply marks up your credit report with inquires and shows you are desperate.
If you have no credit history, or just want to improve your credit, I suggest two things.
- Apply for a secure credit card. Apply here >>
- Call us to repair your credit.