Will canceling a new, unused card hurt your score?
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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Dear Opening Credits,
I applied for and now
have a new retail credit card, which has NOT been activated. I have now decided
not to use it. Can I cancel the card without any credit rating issues? -- Brad
Did you know that I'm
psychic? It's true. In fact, I'm getting a strong vision of you in a store,
shopping around for a few things. You reach the checkout counter and the
cashier sings out, "Would you like to open an account with us and receive 20
percent off all of these purchases? You'll be eligible for super discounts,
coupons and deals on future items, too!"
Now I hear you
responding, "sure," either because it sounded quite sensible or you didn't know
how to gracefully say no.
OK, I'm not psychic.
It's just such a common scenario. Almost all of us have had the same thing
happen, and many wind up feeling regret at opening an unnecessary credit line.
Here's what you need to know and do now.
Because you applied for
and received the new card, it is now live and ready to go. By activation, you
probably mean that you haven't called the number on the sticker on back of the
card that allows you to start charging. The retailer has probably already sent
notice to the credit reporting agencies that the account is active, indicating
the date they issued it as well as your available credit line.
As far as your credit
rating is concerned, FICO most likely has also taken that information and
thrown it into its mathematical soup. Not a big deal. Yes, the score has
factored in the hard inquiry (for your credit application when you initially applied
for the card), but that comprises only 10 percent of the scoring mix and should
only produce a tiny blip downward, if anything. The length of credit history of
your FICO score is also affected, but that too is minor (15 percent) when
compared to the major slices of scoring pie -- payment history at 35 percent
and amounts owed at 30 percent.
So what will canceling
the account now do to your FICO score? Not much. You haven't charged with it so
you haven't established a history yet. If you want to get rid of it, go ahead
and do so.
Call the company and
explain that you'd like to close the account. They should honor your request,
but don't be surprised if they try to talk you out of it. They extended the
line to you because you qualified for it and they'd like you to use the card.
After all, while you may continue to shop at the store with cash or another
card, you may buy more with their credit card, not pay off the balance in full
and generate some interest revenue for the store. Retailers are always looking
and trying to retain great charging customers, and clearly you fit their
requirements. However, if you really don't need the account, be firm. They'll
let you go.
After a month, check your
credit report (you can pull one of each of your three credit reports for free
once a year at AnnualCreditReport.com). It will show when that trade line was
opened and when it was closed. It should also indicate that you, not the
company, canceled the account. Nothing derogatory should be read into the
situation. If it remains open, contact the company again and give them a firmer
Next time you're in the
mall, think carefully before you agree to a persuasive salesperson's offer. Do
you want the account and the benefits it provides? Will it inspire you to spend
wisely or overspend? Or maybe you don't need it at all, as it would be nothing
more than a redundant piece of plastic that clutters up your wallet. Whatever
the case, remember that applying for credit cards should not be done
impulsively, but instead with much deliberation.
See related: Just say no to store credit cards, Nonactivated card can still impact a credit score
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: August 15, 2012