Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets. Ask Sally a question, or read her previous answers in the To Her Credit archive
Dear To Her Credit, I'm not sure what to do. A checker at Costco asked me if I wanted a Costco "gas card" that earned a 3 percent rebate, and I went for it. I filled out the paperwork in a hurry and must not have paid too much attention -- I ended up with an American Express card that doubles as a Costco membership card. I don't want it if it will hurt my credit score! Can I avoid having it hurt my score if I don't activate it? Should I call or write and cancel it?
I have really good credit now and am afraid to mess it up! -- Emily
Getting a new credit card -- on purpose or inadvertently -- affects your credit score three ways. You're likely to see a change in your score based on a new credit inquiry, an increased number of open accounts, and the change to your available credit utilization ratio. Here's how each affects your score:
New credit inquiry. Your credit score may have taken a minor ding -- 7 points or so -- when you applied for the card. That's not likely to change your life or your ability to get credit, and within a few months the ding goes away on its own. Besides, what's done is done -- closing the account now won't help.
Increased number of open accounts. If you already had plenty of credit cards (most people don't need more than two or three), you could find one more pulls your score down slightly. Again, this shouldn't be a big deal unless you start collecting a lot more cards.
Available credit ratio. Your total credit score may have actually improved if you now have a better ratio of credit used to credit available. You should try to use no more than 50 percent of your credit limit at any time, even if you pay the balance every month. The available credit on your new card may make that easier, provided it doesn't tempt you to spend more and use it up.
Your credit score isn't the only thing affected by one more card, however. Consider:
First, does the credit card come with a fee? If it does and you don't want to pay, you might try to back out of it. Annual fees are not always bad; for instance, if the 3 percent rebate on your gas far outweighs the fee. I personally don't mind paying $50 for a card that occasionally lets us fly to Hawaii for free.
If you have more accounts than you can keep track of, say half a dozen or more, that's another problem. Every card means another statement, another due date not to miss. With a stack of cards, someone could steal one or you could leave your card at a restaurant, and you might not miss it for days or weeks.
Another factor to consider is whether you tend to spend more when you have more cards. If you've been paying by cash, check or debit card at Costco, you've had to keep good track of how much you're spending as you cruise the aisles or you'll come up short when you check out. With a card, that's less urgent. You could spend hundreds of dollars when you thought you were there for eggs and dog food. It all goes on the card so easily.
If you're a disciplined shopper, however, you'll find an American Express card very convenient even if Costco is the only place you use it.
It's wonderful that people are becoming more aware of how their actions affect their credit scores. However, it's possible to worry too much. One new card won't make that much difference. Decide whether to keep your new card based on what's best for your total financial picture, not just on how it affects your credit score.
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