One of the more well-meaning pieces of advice we are given to raise our credit score is to open new credit accounts. We may be told that having more data to report on could help raise our score. As with most things, the truth is a bit more nuanced than that. Let's explore!
There can be some benefits to opening a new account toward the goal of raising your credit score:
- A new account shows that you can be approved for credit.
- It reduces your overall debt utilization by adding more to your overall debt limit.
- It can be another way to show responsibility if you keep up on the payments (should you run a balance).
These all seem well and good. Sometimes we take the advice a bit too far. If opening one account is good for my credit score, then opening five must be five times better! Unfortunately, that is not necessarily the case. Let's dig into some negative consequences for opening new accounts:
- Each new account is a hit on your credit, however brief.
- Multiple new accounts in a short time does not show responsible credit use, thus can hurt your score.
- Depending on your discipline, each new account is another opportunity to run up a balance that you can be paying on for months or years to come.
That last point is especially important. Many, if not most, people who get credit cards intend to pay it off each month. However, life is quite unpredictable. The opportunities to have emergencies or other expenses come up and trash your plans are substantial.
The next time you look to open new credit accounts as a way to boost your score, I encourage you to take some time to think about the possible consequence, both positive and negative. Consider carefully not just whether to open new accounts, but how many. It may help you prevent a bigger problem later.