With all the talk about negative turns of the economy and the jobs market the question for personal credit is raised – How Important is it to Have New Credit? This is a great question, so let’s take a look at what is required for positive credit to affect your FICO score.

The ratio for your credit scores consist of the 5 factors that are:

• 35%:  Credit History
• 30%:  Balances (or Debt Ratio)
• 15%:  Length of Credit
• 10%:  New Credit
• 10%:  Types of Credit Used (or Mix of Credit)

When consideration whether or not you need to establish credit there are several of the Factors that you must first take into consideration, not just one. If you have positive open credit you may not need to apply for new credit, to affect the Mix of Credit Factor we have found that you need about 1 to 1.5 revolving lines of credit to every 1 installment loan. If you get heavy either on either side of this equation it will offset you FICO score to reflect a higher risk.

If you have had a negative payment history and have not established new credit you will want to take the step to re-establish a positive credit history. This step alone can affect 4 of the 5 Credit Factors in a positive way. Re-establishing credit and leaving a low balance will have a very good affect on your FICO scores and it highly recommended.

Bottom line is that if you establish new credit your FICO score will more than likely decrease while you are establishing a payment history for this account. We have found that an installment loan will have more of a drastic affect for a longer period of time (due to Debt Ratio) where this factor can be controlled with an installment loan.