What impact does new credit have on a borrower’s credit score?

The impact of new credit on a borrower's credit score can vary based on how many new accounts are opened and the timing of those applications. Opening new credit accounts can lead to what’s known as a hard inquiry on the credit report, which typically results in a small, temporary decrease in the credit score.

If a borrower opens multiple accounts in a short period, it can signal to lenders that they might be taking on too much debt at once, potentially increasing the risk of default. This concern about credit risk is why having too many new accounts opened in a brief time frame can negatively impact the credit score. Lenders are cautious when they notice a significant number of recent inquiries as it suggests that the borrower may be in financial distress.

In contrast, while opening one or even a couple of accounts may not severely harm a credit score, numerous inquiries over a short period can contribute to a more pronounced decrease. Therefore, it is essential for borrowers to space out their applications for new credit to maintain a healthier credit score.