Too Many Accounts Recently Opened |
By Kenneth Long on June 3, 2010
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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.
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.
Join the Discussion at the Credit Forum: Forum: Too many accounts recently opened
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.
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