Don't let fear compel you to cancel your first card

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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Dear Opening Credits,
I have a simple question and one you may have heard many times before. I recently received a credit card offer. I'm 29 and have been reluctant to open a credit card my whole life. I was always raised to never spend what you don't have. Anyway, I finally came around because I want to build up my credit. I'm starting to wonder if my decision that evening was a huge mistake that I made while in a vulnerable state. So my question is: Can I be charged a fee without even activating the card? -- Jeremy


Dear Jeremy,
What to do when a new idea is in direct opposition to an old one and you're not sure which to abandon? Analyze both notions objectively, of course, paying close attention to fact versus fiction. So I'm happy to help provide the information that will give you the clarity you need to make the right choice.

Like most people who decide against getting a credit card, you've rejected it because you don't want to get into debt. Your reticence is understandable. These financial products allow cardholders to charge up to a fixed amount (the credit limit), and that figure can be way out of line with what you're able to pay in full in 30 days or so.

For example, let's say the card you received is equipped with a $3,000 credit line. If you were to spend up to that limit, but only earn $2,000 per month (and have no savings to use), coming up with thousands of dollars by the due date would be impossible. At that stage you'd have to make a partial payment, causing the remaining balance plus interest to reappear on the next bill. The higher the APR (annual percentage rate), the more it will cost you to drag the debt out. How much? Roll $2,500 over to the next month and $44 would be added to the bill if the account has an interest rate of 21 percent. If the rate is 6 percent, interest charges for the month would amount to only $13. In either case, though, interest compounds, which means that interest is assessed on balances already increased with finance fees. In other words, you'll pay interest on the interest.

It's obvious that living with expensive debt is a scenario you don't want to play out in real life. But while credit cards make such a situation possible, it's not inevitable. You can choose to charge only the amount you can repay quickly. The problem is that good intentions don't always result in perfect behaviors.

Whether to keep this card depends on knowing yourself. Do you think you can use the account to pay for things for which you'll have the cash to repay the bill entirely, and won't be tempted to pay less? If so, give yourself a chance! Keep the card and try it out. By borrowing and repaying with the card (on time and in full), you'll build the credit rating you mentioned. Credit scores such as the FICO rank payment history and credit utilization as the two most important factors, and they get that information from a credit report. If you add that type of data to your reports, your scores will be high -- making you eligible for loans and lines of credit with lower APRs and better rewards programs.

If, after some soul-searching, you determine that a credit card is not for you, great. Better now than later. Call the issuer right away and explain that you don't want the card. Point out that you have not used it (they'll see this right away, but it's a good conversation starter) and ask what they will do about the annual fee, if there is one. These fees may be spread out over a year or added to the bill once a year. You should not be charged if you have not used the card, but be sure to ask about it and make sure you're not charged. Don't worry about how it will affect your credit score, though. Because the card is unused, closing it will have minimal (if any) impact.

Still want to create a positive credit history and good credit score? Here are some ways to make that happen:

  1. Keep the card, but use it only for one affordable charge. Choose a single expense that you're currently paying for, such as a gym membership, and have it charged to the account. Set up automatic bill pay to have that sum paid once a month. Tuck the actual card away somewhere secure rather than carry it in your wallet. This way you can reduce temptation to the point where it's a nonissue.
  2. Keep the card and ask that the credit line is reduced. Maybe the issuer will agree to lowering it to the point where even if you do tap it out, it will be low enough to pay in full.
  3. Get a secured credit card. These products are collateralized with cash you put down with the bank. They usually have short credit limits, and if you ever get in over your head and want to close it, the money held in deposit can be used for repayment.
  4. Get a charge card. Unlike credit cards that give you the option to pay in installments, charge cards require cardholders to pay the entire balance by the due date.

In the end, I completely understand the second guessing process, as well as being fearful about giving into temptation (there's a reason I don't keep kettle corn in my home). However, unless you're quite sure that you will mess up royally, give yourself a chance. With a commitment to staying in the black, you should be just fine.

See related: Make sure your first card is a good fit, FICO's 5 factors: The components of a FICO credit score

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Updated: 12-13-2018