Will an unwanted card hurt your credit?A reader intends to close an unwanted, less-exclusive card version
Dear Credit Score Report,
Hi.
We want to apply for a Chase Freedom Signature card. Chase says if you're not
approved for that, they automatically give you a Platinum card with fewer benefits. We only want the Signature card, but they will not guarantee it before
applying. They also say that if we receive the Platinum, we can cancel it within
a short period and not have our credit score affected. Is this true? -- John
Hey John,
Chase is correct that canceling an inactive credit card will
prevent the new account from affecting your credit score in the long term, but the application
process itself could have a slight, temporary impact.
Your application for that Chase Freedom Card will likely impact
your credit score, regardless of whether you get approved for the Signature or
Platinum version. (Of course, there's no guarantee that you'll be approved for
either card.) That's because when you apply for credit, the lender pulls your credit report -- a so-called "hard inquiry" -- to determine whether to approve the loan. Since more loans mean the potential for more debt, you become riskier in the eyes of the credit scoring models. Contrast this to when you request your own credit report. These so-called "soft inquiries" for educational puposes don't impact your credit score.
If you get that unwanted Platinum
card, however, call to cancel the account. By doing so, no card activity
will get reported to the credit bureaus -- preventing any further changes to
your credit score. "If you close the new card before using it, there
should be no additional impact beyond the likely score drop from the initial
account opening," says Barry Paperno, customer operations manager for
myFICO.com, the consumer-oriented website for FICO, creator of the leading U.S. scoring model.
Applying for a single card shouldn't have much impact. FICO's
website notes that most applicants see a credit score decline of fewer than
five points. Since FICO scores range from 300 to 850, a drop of that size is
relatively small. (Compare that to the 10 to 45 points lost when you max out a
card, for example, or the 130 to 240 points lost when you declare bankruptcy.) Also,
"any lost points from the addition of a new account can usually be
recovered within a short period of time, as long as all accounts are paid on
time, balances on other credit cards don't increase and you don't open any
other new accounts," Paperno says.
One major exception to this: If you apply for too much credit in too short a time, resulting in numerous hard inquiries, it could raise red flags and cause further credit score damage. Be careful when you apply -- just as you seem to be doing.
By immediately canceling that Chase account, you prevent the
card from ever appearing on your credit report. "If an inactive account is
closed within a few days of when it was opened" and before your first card
statement is produced, "we would not report it to the bureaus," bank
spokeswoman Gail Hurdis says. Hurdis
says that the first statement is produced seven to 14 days after Chase makes
its decision. So be to be safe, cancel the card within the first week.
Still, you may want to think twice before closing that account. You'd likely be denied for the Chase Freedom card due to a less-than-stellar
credit score, but keeping the Platinum card and using it responsibly will help
you build a better credit history. That could eventually help you get approved
for the Signature product or convince Chase to upgrade your account status.
In other words, use what you get to eventually get what you want.
"From a credit scoring standpoint, as long as you keep the balances low
and make your payments on time, it doesn't matter if the card is platinum,
gold, black or blue," says Rod Griffin, director of public education at credit bureau
Experian.
Good luck!
--Jeremy
See related: Hard inquiries have limited credit score impact, How to cancel a credit card, FICO reveals how common credit mistakes affect scores
Jeremy M. Simon is a former CreditCards.com reporter who wrote about credit scoring, economic data, credit card crime and other issues. He is based in Austin, Texas. He is a graduate of Vassar College and has previously worked for Thomson Financial in New York City, where he wrote about the stock markets, and Texas Monthly, as well as several publications in Austin.
Send your question to The Credit Score Report.
Published: January 11, 2011
 |
 |
 |
|
Three most recent Credit Score Report stories:
|
|
 |
|
 |
|
|
|
|
CreditCards.com's newsletter
Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!
 |
|
|
|
|
|
