Angrily closing an unused card can hurt credit score


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 new credit card to transfer another balance and utilize the 0 percent APR for a year. I didn't receive any notice about the new account other than I had been approved (I assumed for as much as I wanted to transfer as it asked me my balance transfer in the application). This was a Discover It card. When I finally called in to figure out some (or any) information on my new account, I found out it was not enough to transfer the balance, and due to the condescending tone of the person helping me, I, in anger, closed the account.

Now I am curious, was that foolish? Will it hurt my credit very much to have opened, then closed an account like that? I just didn't want to do business with the company anymore. For the record, any other credit card I've taken before has told me how much my credit line would be before finalizing the deal. I understand that the inquiry itself requires a credit check. -- Matt

Answer Dear Matt,
This is an excellent reminder for all businesses, despite size or industry, that consistent good service matters. A lot. A single bad experience can cause a customer to walk away, and sometimes tell other people to do the same.

I agree that that representative you spoke with should have been more helpful. Clearly your original intention was to transfer the entire balance of another card to the new account, so naturally you became frustrated when you couldn't. However, it probably was not in your best interest to abandon the card so rashly. Your desertion might have cost you a few FICO credit score points, and put you back where you started -- in the market for a balance transfer card.

As for the credit scoring impact, the first reason for a potential dip is "pursuit of new credit." When you applied for the card, Discover checked out your credit rating to see whether you qualified. That led to an inquiry being placed on your file. Lenders are wary of people who apply for new credit aggressively, as they can appear desperate. Presuming you didn't go crazy with applications, your score may have dropped just a little and will rebound quickly from the inquiry.

Credit utilization is another factor that was affected, and it carries more weight than pursuit of new credit. This assesses how much you owe in relation to how much you can contractually borrow. Because lenders consider people who are already in debt as risky, the less you owe, the better.

Interestingly, when the Discover card was approved, another credit line was added to the mathematical formula, which probably worked -- albeit temporarily -- in your favor. For example, maybe the other account has a $5,000 limit, and you owe $2,500 on it. That means that 50 percent of the credit line is used up, so your utilization ratio may be stretched (at least on that one card). Now, let's say the freshly issued card had a credit line of $10,000. In that case, your total credit limit expanded to $15,000, causing your ratio to shrink and potentially positively impacting your credit scores!

But when you canceled the card, your ratio went back to where it was before. If it was fine then, fantastic. If it wasn't, you gave up a good thing. The actual closing of the account should not be problematic because it was new and you never used it.

Now to the real matter: You desired the balance transfer card because it would have prevented you from paying a substantial sum in finance charges on a higher balance card. Zero percent for a year is a great deal, particularly if the balance is large and the APR you are currently paying high. Sure, there would be a fee (often 2 to 4 percent of the balance) to shift the debt to the new account, but it can still save you a considerable amount of cash in the long run. See's balance transfer card survey to compare cards -- and fees.

My advice is to try again with Discover. If it still can't help you, pursue a different credit issuer. Another option is to appeal to your present credit card company and ask for an interest rate reduction. They won't give you a 0 percent rate, but you won't have to pay the transfer fee.

In the future, address your disappointment (or anger!) with a company higher-up before slamming the phone down and ending the relationship. This way they at least have the chance to make you happy.

See related: New myth: Closing a card account always hurts your score, 2015 Balance Transfer Survey: Offers more generous, but move fast

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Published: September 17, 2014

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Updated: 10-24-2016

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