This is a common question that I get quite often so I thought I'd take a moment to share. When you open a new account there are several items that can impact your credit scores. They are…

The inquiry – The lender is going to pull at least one of your three credit reports in order to determine your creditworthiness. This means at least one of your credit reports is going to have a new credit inquiry, which can lower your score for up to 12 months.

The new account – The lender is likely going to report the newly opened account to all three of the credit reporting agencies. This new account can lead to a lower score because the account will be brand new and can lower the average age of your credit history.

New debt – If you choose to use the card, you will incur debt, which will be reported to the credit bureaus. The more debt, the more potential damage to your scores.

A new credit limit – The credit card you open will likely have a credit limit, which will be reported to the credit bureaus. This can help your scores, especially if it’s a high limit and you carry debt elsewhere.

Opening the account is really what causes the damage. Closing it doesn’t reverse that damage because it doesn’t remove the inquiry and it doesn’t remove the account from your credit reports. If you open an account it’s actually better to keep it open because as it ages, it will help your scores. It would be even smarter to use it periodically and pay it off each month so you don’t incur interest fees (but the lender makes a little revenue from the merchant fees, also called interchange).

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

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