In detail
New credit is one of several categories of information that credit scoring algorithms may evaluate when calculating a credit score. It focuses on recently opened credit accounts and recent hard inquiries, which occur when a lender or creditor checks a consumer's credit report in connection with an application for credit. The number of new accounts, the age of those accounts, and the number of hard inquiries within a certain period are typical elements of the new credit factor. Federal law, such as the Fair Credit Reporting Act, governs how credit reporting companies must handle inquiries and how long they may remain on a credit report. Unlike payment history or credit utilization, new credit is not a measure of how a consumer manages existing debt. Instead, it reflects recent credit-seeking behavior. Scoring models may consider how many applications a consumer has submitted and how close together those applications occurred. Some scoring models group certain types of inquiries, such as multiple mortgage or auto loan inquiries made within a short window, and treat them as a single inquiry for scoring purposes. The precise treatment of new credit varies by model and is often proprietary. New credit is only one part of a broader credit scoring algorithm. It does not act alone, and its influence depends on the other information in a credit report. A consumer with a long credit history and few recent inquiries may have little new credit activity, while a consumer who has recently opened several accounts may have more. Credit reporting companies like Equifax, Experian, and TransUnion each maintain their own credit files, and scoring models built on those files may evaluate new credit differently.