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How canceling a new card can hurt your credit

Even if you never use the card, the damage from a hard inquiry is done

By

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question Dear Opening Credits,
I recently applied for my first ever (never had a credit card before) Discover card, assuming they give 0 percent APR. As soon as I realized that wasn’t the case, I asked Discover to cancel the credit card on the same day. This happened four days ago. So my question is, will it impact my credit history since I canceled the card. If yes, how much would it impact my credit score? – Abhiram

Answer

Dear Abhiram,
As a result of applying for the Discover card, even though you closed it right away, you now have an unnecessary hard inquiry on your credit reports. When you applied for this credit card, Discover checked your credit history to gauge whether or not you qualified for the product. After that, Discover alerted the credit reporting agencies – TransUnion, Experian and Equifax – that you were granted a line of credit.

While hard inquiries are a minor credit scoring factor when compared to payment history and credit utilization, if you don’t have much on your credit reports, a hard inquiry can cause more damage than if you were a seasoned credit user.

Bear in mind that while a hard inquiry may bring your score down, the effect will be temporary, and adding a card to your credit history will ultimately be positive since it creates a healthy mix of credit products.

Because you didn’t use the account (having closed it so quickly), your credit reports aren’t showing any activity with it, positive or negative.

To know exactly how all of this has affected your reports and scores, check them! Pull your credit reports for free from AnnualCreditReport.com to view your credit history, and FICO or VantageScore. (Or go to Discover Credit Scorecard for a free FICO score and My.CreditCards.com for a free VantageScore).

Your credit rating may be better than you think, even with the hard inquiry. I assume the Discover card was unsecured because you don’t mention expecting your cash deposit back. That means you may have a decent credit rating, since unsecured card accounts are granted based on past credit performance (what’s on your credit reports) and current means (your income, which would need to be enough to support any debt you could get into with the account).

Maybe you have student or car loans on your reports that are in good standing. Or you’re an authorized user on someone else’s credit card. If you are an authorized user, you wouldn't be responsible for the account, but the activity from that account can appear on your reports, and if it’s positive, you benefit.

I think you canceled the Discover card prematurely, since it does (kind of) offer 0 percent interest! In fact, all credit cards do. Simply pay the balance in full by the due date and you scored yourself a fee-free short-term loan. 

A credit card that will never charge interest on balances doesn't exist, but some do offer 0 percent APRs for a specific promotional time period, such as 12 months. To qualify, you’d need a good to excellent credit rating. If you apply and are approved for one of these cards, take careful note of what the APR range will jump to once the promotional period expires.

If you still want a new card, read over a variety of account offers that match your credit rating and apply for the one you like best. If you think you will use the card to buy something you want to pay for over time, be sure to look for one with the lowest APR you can get. Otherwise, it shouldn't matter how high the interest rate is if you don’t carry a balance. Pay every cent you borrow within a billing cycle and the rate will be irrelevant.

Oh, and when you maintain no or low debt when paying on time each month, your credit scores will continue to climb. When those numbers are impressive, you’ll be eligible for loans and credit cards with especially low APRs, which is what you desire!

If you’re confused about any card’s terms, call the issuer and ask for clarification before you apply. It’s the smart thing to do.

See related: The hard and fast rules of hard inquiries

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Published: November 16, 2016


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Updated: 12-03-2016


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