The risks of canceling a new store card

If you're new to credit, you may be better off keeping the card open

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 CreditCards.com.

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Question Dear Opening Credits,
I was in the store shopping and was talked into applying for a store credit card by a cashier. I was approved. He suggested I use the card for my purchases and then pay the card off immediately. Well, that’s what I did. I left the store feeling uneasy and want to cancel the card. Will I have a problem with my credit scores? This was my first credit card, and I am a senior. – Suzy

Answer

Dear Suzy,
I can understand why you feel uneasy. The cashier talked you into something that you didn’t have a chance to fully understand and explore before you agreed to it.

You have two basic questions. The most pressing is about how getting this credit card affected your credit rating, then what closing it might do.  

When you applied for the card, the lender checked your credit rating to determine if you were a suitable candidate. That happened instantaneously since most credit checks are done electronically. A credit check that is tied to a credit card application results in a “hard inquiry” on your credit report.

Inquiries are a credit scoring factor. FICO and VantageScore are the two major credit scoring companies, and each company inputs the activity listed on a credit report into its mathematical model designed to predict lending risk. Too many inquiries can drag your credit scores down. One inquiry shouldn’t do much damage unless you have very little on your credit reports to balance it out, which may the case with you since this is your first card.

On the upside, retail cards are a great way to get your credit started as they often have low credit limits (meaning less risk for the lender) and higher interest rates (which is why you never want to carry a balance on a store card).

As for how being accepted for the card impacted your scores, it might have actually given it a jolt upward – even with the hard inquiry. That’s because credit scores also assess the amount you can borrow as opposed to the amount you owe. That’s called credit utilization. If you’re debt-free and have an empty line of credit, your utilization ratio expands. That helps your scores rise. Plus, since this is your first card, this is a great opportunity to build your credit by borrowing and repaying responsibly with the card

While I can understand you feeling uncomfortable about signing up for a card that you really didn’t wait, the damage from the hard inquiry is done, and now, it is adding positive information to your credit scores. Like I said, retail cards are good starter cards, provided you handle them responsibly (meaning you pay off the balance every month before the due date). However, if you are truly dead set against having this card in your wallet, you can close it. Your credit rating will eventually revert to its original state, minus the slight and temporary ding for the inquiry and loss of credit line.

It’s important to possess only the number of accounts you can handle. Each card must be actively managed. You’ll have to be conscious of where it is, what your balance is and when payments are due. Every statement should be read carefully so you can spot errors or evidence of fraud.

Ultimately, though, the decision to keep the card or close it is yours. The next time a salesperson offers you the opportunity to apply for a retail credit card, say, “Thank you, but I’ll think about it.” Then if you want to proceed, you’ll know you will be making a decision you’re comfortable about.

See related: 4 reasons you should get a store card, 4 reasons to say no to a store card offer

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Updated: 11-20-2017