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.
Dear Opening Credits,
I just activated a credit card with US Bank thinking it was my newly opened checking account card. I have two other credit cards carrying balances, but I pay them off in full each month. Will canceling the US Bank credit card hurt my credit score? — Kathy
Want to know what’s in a can of Coke? Easy. Just look at the list of ingredients. You’ll see carbonated water, some sort of sugar, caramel color — and the ever-mysterious “natural flavoring.”
Same goes for credit scores. The companies that develop these numerical assessment tools (the most common being the FICO score) does make known the basics of what goes into their mathematical models. But are they going to reveal the exact formula? Of course not. As with the famous soft drink, that’s proprietary information. If everyone knew what goes into their “natural flavoring,” others would replicate it.
So back to your question: How does a credit card that you opened for a brief moment and close soon after affect your credit score? A little, maybe, but probably not by much or for very long. It’s because the credit scoring recipe is brief and basic:
- 35 percent payment history
- 30 percent amounts owed
- 15 percent length of credit history
- 10 percent types of credit in use
- 10 percent new credit
Let’s speculate how closing the account will impact your score using the formula above.
You activated an account but did not use it, so there is nothing in the first three (and most-important) categories to weigh. Therefore, the activity you described would most likely fall in the least-significant sections. Combined, those two comprise only about 20 percent of a total score. This is why I believe those numbers will experience a ding, but a minor one. So don’t worry. If you don’t want or need the card, go ahead and cancel it.
In the meantime, you seem to be doing all the right things with your other two accounts. You’re charging away, but paying the balances off every month. That’s great! Your credit reports and scores are reflecting that positive behavior.
I do suggest that you obtain your FICO scores now, so you can keep an eye on any upward or downward movement. These digits are constantly in a state of flux. You can order them from myFICO.com (they’re about $20 apiece from each of the big three credit bureaus), and if you’ll be applying for a car or home loan in the near future, you’ll want to be sure that they are as good as possible. High scores, plus a solid income, help in getting great rates and terms. Credit scores in the mid-700s and above are desirable, so if they’re not quite there yet, increase your positive credit activity for a few months. Charge regularly, reduce any other liabilities (including existing vehicle, home and student loans) and never pay late or miss a payment cycle.
Finally, don’t worry about minor fluctuations in your credit score. It is always going up or down a little. Focus on the weightiest factors and follow the general guidelines. That should be enough to keep your numbers in the right range.
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