Credit score impact of opening, quickly closing a new card

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 recently applied for a pet store credit card, but decided not to use it. How will it affect my credit if I cancel it?

Your credit scores should revert to what they were before you applied, minus the points you lost with the initial inquiry. Those you can quickly make up for with responsible credit use going forward.
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Dear Opening Credits,
I recently went to a pet store and wanted to finance a dog. I wanted to see how much I would be approved for, which they said would have minimal affect to my credit score. I found out later that night how much I was approved for and decided not to go ahead with getting the card. A couple of days had passed, and I received a the pet store’s credit card in the mail for the pet store. It’s been a little over two weeks now, and I have not yet activated the card. I want to know if I am able to cancel the credit card with minimal impact to my credit score. I don’t shop at the pet store frequently and have no use for the credit card. My credit score is currently good without the pet store credit card.  – Roseanne

Dear Roseanne,
While you were shopping for a dog and exploring alternative ways to cover the cost, you applied for the store’s credit card. Some pet stores, such as Petland, offer credit accounts customers can use to purchase an animal as well as products. I’ll review some of the pros and cons of a store card, but I want to answer your question of how this pet store credit card has affected your credit reports and scores.

How a new card can impact your credit score

Because you authorized the store to check your creditworthiness to see how much of a credit line you would be approved for, a hard inquiry was placed on your credit reports. A hard inquiry can knock your score down a bit for a year and stays on your credit reports for two years.

Compared to payment history and debt-to-credit limit ratio, “pursuit of new credit” is a minor scoring factor. It typically results in about 5 points taken off your score. However, the impact is greater if you’re new to borrowing or have few active accounts. The salesperson had no way of knowing the details of your credit history, so he or she was incorrect in telling you that the effect would be minimal.

Age of credit is another credit scoring factor. It’s a positive thing to have credit cards and loans open and active for many years. Add a new credit card to the mix and the overall length of your credit history shortens, so points will be subtracted.

Tip

Tip: When applying for credit, know that a hard inquiry will knock your score down at least 5 points for a year, but possibly more if your credit history is relatively fresh. Hard inquiries stay on your credit reports for two years.

On the other hand, by adding an unused credit line to your portfolio, your credit utilization ratio might be expanded if you are carrying balances on other cards, so your credit scores could increase.

What will closing a new and unactivated account do to your credit scores? Your credit scores should revert to what they were before you applied for the pet store card, minus the points you lost with the initial hard inquiry. You can quickly make up for those lost points with responsible credit use going forward. If, as you suggest, you don’t want this credit account now, just contact the issuer and cancel the card.

See related: How to cancel a credit card

Regarding using a credit card to buy a pet, it would be very important to pay off the balance off. The Petland card, for example, comes with an APR of 29.99 percent. If you were to charge $1,000 and only send the minimum requested payments (roughly $30 each month), it would take 17 years and 6 months to pay off! The debt could outlive the dog, and the total interest would be about $3,000.

Charging a pet does have some advantages, though. If the animal isn’t healthy and that was not disclosed, the consumer protections that are built into all credit cards could be advantageous. You might be able to seek restitution if you have to return the dog and void the transaction.


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Updated: 10-23-2018