Help Yourself

Opening or closing a credit card can hurt your credit score. While the drop in your score is usually temporary, you can make sure that when you open or close a card it doesn’t become a big financial obstacle. Here are ways to avoid hurting your score when you open a card and when you close a card.

When You Open a Card

Resist the urge to up your spending when you open a new card. One of the factors considered in your credit score is your total balance on all of your cards combined. If you open a card and run up the balance, it will bring up that total balance and that will hurt your score. Unfortunately, many people tend to do just that. In one report, two-thirds of consumers who opened a new credit card increased their balance almost immediately afterward. Among those who opened a new card and increased their balance, their credit scores fell by an average of 14 points. Meanwhile, those who opened a new card and didn’t increase their balance saw their scores increase by only 11. Keep your balance low and you’ll be better off.

When You Close a Card

Another big factor in your credit score is credit utilization ratio — the credit you’re using divided by your total credit available. When you close a card, this ratio can take a hit. As CNBC notes, if you have a credit balance of $3,000 and a credit limit of $10,000, your utilization is 30 percent. That’s a good ratio. However, if you close a card that has a $5,000 limit, now your ratio is 60 percent, which isn’t good. Closing a card isn’t always a good move. Instead of closing one, try using it just every few months and paying off the balance completely. That will keep your utilization low and help your credit score.