Canceling an unactivated card can hurt credit scores

Opening Credits columnist Eric 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,
Can I cancel a credit card before I activate it?   -- Mark



Dear Mark,
You sure can! As a credit card customer, you have the right to cancel an account anytime you wish, including seconds after it being granted. However, just because you didn't activate the card doesn't negate the fact that you applied -- and were approved for -- a line a credit.

Buyer's remorse is common, and to change one's mind is human. However, it's important to understand how a capricious credit card application can affect a credit rating.

When you applied for the account, the credit issuer looked into your credit history to know what type of borrower you've been. Your FICO score was probably accessed, as it helps lenders instantly determine what kind of credit risk applicants are. Then, after the issuer determined you were indeed a great candidate for the card, it approved your application, set a credit line and sent you a piece of plastic with your name on it, ready to use with a phone call or online prompt.

So what has applying and getting approved for this account done to your credit record? First, the issuer's credit check has shown up on your credit report as a hard pull (also called an inquiry). Inquiries are calculated into a FICO score, and though pursuit of new credit accounts for only 10 percent of the score, too many applications in a short span of time can reduce your overall score as it makes you appear desperate for credit. If you have very little on your credit reports, such inquiries can have an even larger impact on your score.

If you cancel the card quickly, the credit reporting agencies could be unaware of its existence. There is usually a lag time of 30 to 60 days before a new credit card shows up on a credit report. But if you've been sitting on it for months, debating whether to activate the card, it is being factored into your FICO score. Having that open credit line also has a credit score impact, and it might be a good one. If you have debt, a new credit line decreases your credit utilization ratio (the amount you owe compared to the amount you can borrow). While payment history is the primary FICO scoring consideration, credit utilization is a very close second.

I'm not trying to persuade you to keep an unwanted account open. Go ahead and cancel the card if it's extraneous. You can do that with a phone call to the credit issuer. But just be aware that if it has helped your score rise because it broadened your credit utilization ratio, your scores will likely drop once you lose that credit line. But don't worry too much about that as you can hike it back up by deleting any debt you're carrying elsewhere and being sure to always pay your creditors on time.

Next time, ask yourself a few questions before applying. Do you really want or need that extra line of credit? Is it the best you can get? Are you OK with the credit impact it will have?

If you choose to cancel, don't worry too much about the credit score impact. Just make the right decision now and learn from the experience.

See related: Is a card account open if it isn't activated

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Updated: 10-21-2018