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Q: Why does opening new retail credit card accounts adversely affect your credit score?
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Added April 16, 2010 from: Amber Stubbs
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Amber Stubbs
Answered By Amber Stubbs:  Opening too many retail credit card accounts is a common mistake. Retail accounts are typically easy to get compared to other lines of credit. Also, many retail stores aggressively pursue applicants. For example, as you noted in your own experience, most offer a discount on your current purchase if you apply for a card and are approved. Many also set goals for salespeople to obtain a certain number of applications each month. 

However, the problem with your credit is not limited to retail cards. The reason for the decrease in your credit score is because your recent behavior includes activity that lenders consider to be a red flag. The following areas of your credit score are affected by opening too many new accounts:

1.        New Credit. New credit accounts for approximately 10% of your credit score. Having too many inquiries and too many new accounts adversely affects this aspect of your credit score. The impact will be greater for consumers with shorter credit histories.

2.       Length of Credit History. Length of credit history makes up about 15% of your credit score. Opening too many new accounts at once will lower your overall account age, which negatively impacts this factor.

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Although it will take some time, your credit score will recover as long as you begin managing your credit more carefully. Remember to keep applications for new credit to a minimum and only apply for accounts you need and to plan to use. This does not mean that you have to swear off retail card accounts forever. But, in the future, use these tips when considering a new retail credit card:

1.       Limit yourself to retail cards with stores where you frequently shop.

2.       Only consider retails cards that offer ongoing accountholder discounts as opposed to only offering a discount for the initial purchase.

3.       Always pay in full. Retail credit cards typically have high APRs that will offset any discounts you receive if you carry a balance.

For more information, check out our article on Retail Credit Cards.

This question is about:  Credit Scores / Reports | Retail Credit Cards
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