Credit bureaus penalize consumers who have had too many accounts recently opened. If you have been denied credit due to an excessive number of credit accounts opened in the last 12 months, this is a warning sign that you are taking on too much credit.
|“Too Many Accounts Recently Opened”||Credit Score Risk Factor Codes|
Credit bureaus allocate 10% of their credit scoring models to new credit. When several new accounts are opened in a short period of time, it sends a message that you are either desperate for new credit or are unaware of how credit should be managed.
Desperation is measured by the number of credit applications you open in a short period of time. Even if you do not open the accounts, applying for many accounts can also lower your credit scores.
Remember that credit bureaus are not aware of your income or any emergencies. Suddenly opening several lines of credit sends a signal that some major life event may be occurring. Perhaps you lost your job or totaled your vehicle and had no collision insurance. What credit bureaus are aware of is the fact that consumers who open many accounts in a short period of time have a higher risk of default, hence the reduced credit score.
Credit bureaus also understand that consumers who open new accounts only sparingly have a greater appreciation for the dangers of credit. Someone who opens several new accounts may be on a shopping spree or otherwise living above their means. Perhaps they are dating and want to wine and dine their date. Regardless of the reason, the trends tracked by credit bureaus suggest higher default rates among those who open the greatest number of accounts over a short period of time.
If you have seen this error on a credit report or have been denied credit for this reason, understand that your credit has not been damaged. Your scores have simply dropped due to so much recent activity. Your best bet is to avoid opening any new accounts for at least the next 12 months, and preferably over the next 24 months.
As you avoid opening new accounts, you give your other accounts a chance to age. That is important, since 15% of your credit score is based largely on the average age of your accounts. Give it some time and your scores will recover.
Too many accounts recently opened is Code 9 on FICO-based credit scoring products. It is code T0 on NextGen scoring products. For more information on credit scoring, see the complete list of credit score factors.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
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