Does canceling an unactivated card hurt credit scores?
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,
What will happen to your
credit score when you apply for a credit card, you get approved and the credit
card is sent to you, but you never activate it and never use it? The reason why
I never activated the credit card is because the credit line is very low ($400)
and the annual fee is very high ($99). -- Lilyana
The credit card that you applied for
and have now received is an open account. It doesn't matter that you never
called the number on the back of the card to bring it to life or have yet to
make a purchase with it. To the credit issuer -- and the credit reporting
agencies -- it's good to go.
Now that you've taken a closer look at
the terms, however, you would rather not have the card at all. I can understand
that, as the credit line is on the low side and would not have afforded you
much flexibility to charge the things you may need. The annual fee is also
quite high compared to that limited borrowing power, too. Had you read about
the terms beforehand, you probably would have rejected them before they
So pick up the phone and call the
credit issuer immediately to tell them you've changed your mind. If you cancel
the account fast enough, you may be able to escape paying the annual fee. As
long as the account remains active, however, it will be used in calculating your FICO scores.
FICO scores are the most commonly used
of all credit scoring models, and they take into account all the credit
information that appears on a consumer's credit file. Some of the data carries
greater weight than others, though. Here's how a new credit card -- whether you
close it or keep it open -- affects your scores.
When you completed the application, the
issuer checked your credit history to see if you qualified for the
product. This action prompted an inquiry
to appear on the three major credit reports, Equifax, TransUnion and Experian.
Even if you had been denied your request for credit, evidence that you gave it
a whirl would show up. Such inquires -- also called hard pulls -- result in a
temporary ding to your credit score. Still, I wouldn't worry about that too
much. Inquiries make up just 10 percent of a FICO score, and though they remain
on a report for two years, they are only factored in for a year.
As for the other scoring factors, Payment history is the most important, as it comprises 35 percent of the
score. Assuming you never charge with the card, there will be no payment
history to assess. The next weightiest is amounts owed, at 30 percent. You
will have an available balance while the card is open, which is part of this
category, but when you close it that ceases to be a factor. Because you did open
(and shut) it, the card will be included in the length of credit history
category, which is computed at 15 percent of the score. Types of credit used,
which is the last category, at 10 percent, won't be included in the score
after it's inactive.
I can't tell you exactly how much or how little damage canceling the card will do to your credit since I am not privy to your current credit score and reports, but I wouldn't worry about it too much. If you are trying to rebuild a poor credit score, I would suggest trying a secured credit card (where you put a deposit down to secure a credit line) with no annual fee for a year or so. Use that card responsibly by charging small items and paying them off on time every month.
In the future, save yourself all this
unnecessary trouble! Only apply for the
best credit card that you qualify for and that you really want. You can do that
by researching the current credit offers for people with the type of credit
rating that you have. Identifying and obtaining the perfect plastic for you can
take a little time, but it's an effort that will pay off in the long run.
See related: Nonactivated cards can still impact a credit score
, Think you can't use that not-yet-activated card? Not so
, FICO's 5 factors in setting 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: May 15, 2013