Is Your Credit Score Affected by Open Card Accounts?

Credit scores are figured by a byzantine formula that mystifies most consumers. One of the most confusing aspects of credit scoring is how credit scores react to credit card activity. Everything from opening a new card to closing an old account can result in dings to your credit score. Treat open accounts with care, or your credit score could fall.

Making Payments

It may seem obvious, but making payments on open credit card accounts on which you are carrying a balance affects your credit score more than anything else. If you're carrying debt on an open account and miss a payment, expect your score to fall. Consistent late payments, or late payments to more than one card, are a recipe for credit score disaster. No surprise, then, that making payments on time and in full each month is the best thing you can do for your credit score.

Credit Limits

Lenders who use your credit score to determine whether you are creditworthy like to see that you're not overextending yourself by carrying high debt on other loans and credit card accounts. For that reason, the closer your credit card balance is to your credit limit, the more your credit score is affected. Aim to keep your balances at 30 percent or less of your credit line to keep open card accounts from adversely affecting your credit score.

Adding New Accounts

The credit card accounts you already have open aren't the only the only accounts with the potential to harm your credit score -- new accounts can also cause you problems. Each time you open a new credit card account, your credit score takes a ding, because you are accessing more credit. When you make a large purchase that puts the card balance near the credit limit, or transfer balances, the damage is compounded. Open new accounts only when necessary, and undo damage done by these accounts by keeping your balances low and paying on time.

Closing Existing Accounts

One of the most bizarre quirks of credit scoring is the effect that closing an open credit card account, even one in good standing, can have on your score. Closing an open account, even to switch to a card with better rates or lower fees, can take points off your credit score because you have less credit available to you and the balances on your other cards will show as a larger percentage of credit used. The good news is, your score will rebound quickly as long as you make timely payments on other credit accounts.