How can a new, unactivated card cause a credit score drop?

Opening Credits with 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.

Ask Erica a question, or see if your question has already been answered in the Opening Credits answer archive.

I just applied for a secured card and hadn't even activated it yet, and saw that my score plummeted 50 points. How can this be?

Know that even though you hadn’t “activated” the card, the hard inquiry that resulted from applying and getting approved for the card already impacted your credit score. Add that inquiry to several other inquiries, and you’ve caused some damage, but it’s just temporary as the impact of hard inquiries lessens over time.

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Dear Opening Credits,
My credit score was 605. This was due to three delinquent collections accounts (medical). I came up with a game plan and paid them all off (totaling approximately $1,300). To my pleasant surprise, my score shot up 23 points!

I decided to open a secured credit card to help my score further. I was approved for a Discover secured credit card this month. I checked my score a few times to see if there was any increase, but it was the same.

I have not yet activated the card as I have been busy. I went to activate it today, but decided to check my score first only to discover it had plummeted a whopping 50 points! How can this be? I haven’t even activated the card, so there is no delinquency there.

I only have one other account, which is my auto loan that is in perfect standing. Granted, I do have a few hard inquiries, including the most recent from Discover, and my credit history is short. Nothing else has changed except my getting a new secured credit card.

I worked so hard to improve my score and after all that my score is worse than it ever was before. – Marlena

Dear Marlena,
Take deep breaths. I assure you that everything will be fine. You’ve taken the right steps to get your scores in a good position. Although they’ve slid down, it should be fairly quick and easy to get them back up and even better. 

Tip

Tip: For some people, there’s little to no impact from a hard inquiry. However, the shorter your credit history, the fewer accounts you have and the more recent inquiries you have, the greater the impact.

Know that even though you hadn’t activated the card, the hard inquiry that resulted from applying and getting approved for the card already impacted your credit score. 

A single hard inquiry should cause only credit score damage of only a few points typically, three to five points. But if you add multiple hard inquiries, you can cause more significant damage, especially if your credit history is short.

I reached out to Jeff Richardson, VantageScore Solutions spokesman, to discuss your specific situation. He believes the scoring decline is due to you applying for multiple credit accounts in quick succession. However, he says the negative impact will be short-lived.

“Typically, credit scoring models look at applying for and opening new credit lines as potentially risky,” says Richardson. “That’s because statistically speaking, it is. But over time, in just three or four months, as long as you keep the account in good order, you will start to get positive results again. Your scores will increase since you’ll have more open lines of credit available to you.”

Setting the stage for a score recovery

What you should do now is get that Discover card up and running! Charge a little every month. Send all payments in full and on time. That activity will be reflected on your credit reports and calculated into your credit scores. You mention that the length of your credit history is on the low side, so start this process as soon as you can. 

The impact of hard inquiries lessens over time. The shorter your credit history, the more damage hard inquiries cause, so now it’s time to sit back and allow your scores to recover.

To hike up your scores further and faster, do the following:

  1. Keep paying that auto loan perfectly. By the time the entire balance is deleted, your scores will be significantly higher than what they are today.
  2. Stop applying for credit cards and loans for at least six months. Give those old inquiries on your credit reports a chance to age.
  3. Open another credit card when your credit scores are in the 700s (and as long as your income is steady) or upgrade your Discover secured card to an unsecured card. You should be eligible for a wide variety of credit cards. Read the qualification standards for each before you apply to make sure you will qualify. You can use CreditCards.com’s CardMatch tool to help. With a couple of accounts in use, you’ll build a solid credit history and scores in double time.

As for those medical bills that went bad, Richardson also commends you for your hard work in dealing with them.

“The VantageScore 3.0 and 4.0 (which are the most recent versions of the score) do not penalize consumers for satisfied collection accounts,” he says. “Paying them off was definitely the right thing to do!”

See? I told you that you’d be OK.

See related: Hard inquiries: How they work when you apply for credit



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Updated: 05-25-2018