Should I cancel my new card because of its high APR?
Keeping the card is better for your score – just don’t carry a balance on it
Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.
Should I cancel my new credit card because of its high APR?
Canceling a new credit card won't remove the temporary ding the hard inquiry generated off your credit report, but you can call to request a lower APR. If that doesn't work, you have two other choices: cancel the card or keep it and never roll over a balance on it to avoid paying any interest.
Dear Keeping Score,
I recently received a letter from the credit card company that my application was approved and my new card would be arriving shortly. The letter stated that my credit score from Experian was 685, however I am registered with Experian and when I checked my account with them, they show my score on their website to be 737.
Of course, the credit card company says my APR will be 24.99 percent because of this score. I have not received the card yet, but should I just cancel it prior to activating it or should I call the company and see if they will reduce the APR? I feel like they are defrauding people by charging higher APR rates based on inaccurate scores. Is there any way to report this and who would it be sent to? Something doesn't add up. -Bill
Credit scoring is an ever-moving target. And while a 52-point swing does seem a bit extreme, there could be other factors in place here.
Your idea to call the credit card company is actually a very good one. You can tell them what you’ve told me and see what they have to say. Your objective here would be to get them to make some concession on the APR or agree to review their decision in a few months.
However, I would not recommend that you accuse the company of defrauding its customers. Remember that old saw about catching more flies with honey than with vinegar. My guess is that they are using a different version of the score than was used at the Experian site.
Tip: When does it makes sense to close your oldest credit card? If you think having that extra card in your wallet will tempt you to overspend, it may be time to cancel it.
You see, not everyone uses the same score algorithm, version or even type of a score to rate a customer. FICO 9 is the most current version of the FICO score (though FICO 8 is the most widely used version). That means there were eight other versions before it and many are still in use.
Additionally, many industries tweak the basic score to better suit their products. So, the same data may score differently with a car dealer or a mortgage lender. Add to that the possibility a lender is using a VantageScore and not a FICO score at all and things can get messy easily.
Here are three choices:
- You can cancel the card and be done with it.
- You can keep the card and try to get a better rate.
- You can keep the card and be very careful not to ever carry a balance.
If you cancel the card, your credit report and score are still going to reflect a hard credit inquiry – even if you don’t activate the card. This is going to bring your score down a bit temporarily. You’ll also lose a potential credit score boost from increasing your overall available credit, which would reduce your credit utilization if you keep balances on other cards.
If you call the company, be prepared to give them some additional information they may not have. Things you can demonstrate – like a good rental history, utility payments or bank account information – may help them come to a different conclusion about your account.
If you keep the card, I suggest you be careful about how you use it. Carrying a balance from month to month will be really expensive. And putting a new purchase on this card if you already carry a balance is going to cost you big.
Every purchase you make on that card with a carried-over balance will begin accruing interest from the day you make the purchase until the day you pay it off. Even just carrying a balance for 90 days could tack on an additional 6 percent to whatever it is you bought with interest payments at 24.99 percent.
However, if you use the card in place of cash for purchases you can pay off in full, such as gas or groceries, when the bill comes you will not incur any interest charges ever.
One thing you didn’t mention is if the card charges an annual fee. If it does, that might be another reason to consider canceling the card and living with the temporary ding. There are too many good offers out there to pay for the privilege of having a card with this high of an interest rate.
Remember to keep track of your score!