Canceling new card won’t offset hard inquiry score impact


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

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Question Dear Opening Credits,
I recently opened a credit card and my score dropped 35 points. Is it a good idea to close it? Will my score come up again?– HoHo


Dear HoHo,
The reason your credit scores took a downward turn is probably because you don't have much on your credit reports to offset the hard inquiry that resulted when you applied for the card. A hard inquiry is typically generated when a lender checks your credit to see if you qualify for a new loan or line of credit.

There are two major credit scoring systems in the U.S. — the FICO and the VantageScore. Neither ranks a hard inquiry as a particularly heavy scoring factor. Payment history and the amount of debt you hold relative to the amount you can borrow (your credit limit) are far more important. However, if you do not have a lengthy pattern of using credit cards and loans in a positive way, applying for new credit will always cause a bit of credit score damage.

Don't worry, though. This is just part of the process. Keep the account and use it so that it benefits you as well as your credit rating. Charging small amounts and repaying on time are what will help your scores increase, not closing it. In fact, with excellent use, your numbers will not just bounce back, but exceed what they once were!

Here are some tips to build and maintain a healthy credit score:

  1. Develop a budget. When you know exactly how much you spend each month and live within self-imposed parameters, you will be far less likely to experience a shortfall and have to borrow your way out of the problem. Credit cards are payment tools, not a way to fund an emergency. That’s what savings accounts are for, so build up a nest egg that you can turn to for unplanned bills.
  2. Choose one expense to charge per month. To create a high credit score, you’ll need to add a considerable amount of positive information to your credit reports. In the beginning, the easiest method is to identify one affordable, regular expense that you will charge monthly, then have that sum automatically deducted from your checking account. You will guarantee that your credit reports are filled with activity that indicates you are financially responsible. Once you’ve got the hang of that, you can pay for other things with the card, but take pains to always pay by the due date and not carry over a balance.
  3. Keep track of all activity. Make sure you read over your credit statements every month so you can identify potential problems early, then rectify them before they might do any arm. Check your credit reports at least annually, too. You can pull them for free (one from each of the big three credit bureaus, Equifax, Experian and TransUnion), once a year from Mistakes and fraud do happen, and they can result in a falsely low credit scores.
  4. Obtain new forms of credit. After about a year of perfect payments and maintaining zero debt, consider adding a new account to your portfolio. Using a variety of credit cards, installment loans or other financing arrangements will give your credit scores another boost.

You may wonder if a new round of applications will hurt your scores. Hard inquiries stay on your credit reports for two years and become less important as the months tick by. Typically, those inquiries ding your score by just a few points. But, if you’re new to credit, those inquiries carry more weight, as you witnessed with your new card.

A great deal of attractive data listed on your reports should override the damage a hard inquiry or two can do. And remember, only pursue the credit products that you will qualify for and that you truly desire. When you have them, stop applying. You’ve got what you need!

See related: Card account isn't closed if annual fee still charged, Canceling unactivated card can hurt credit scores, The hard and fast rules of hard inquiries

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Published: June 22, 2016

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Updated: 10-23-2016

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