Once you apply for a new credit card, whether you meant to or not, you can’t stop the hard inquiry from showing up on your credit report. However, the card can be net positive for your credit score as long as you keep a low balance and pay on time, every time. Plus, the hard inquiry’s impact will be minimal and temporary.
Dear Keeping Score,
Hi! I currently do not have any credit cards – I use my debit card directly linked to my credit card. When I was at a store, I genuinely thought I was signing up for a “store bonus card” (to rack up points to be used at the store as I shopped).
Well, I ended up signing up for a credit card that I do not want. Is there any way to stop this? It happened around two hours ago. I am rebuilding my credit from a messy divorce and have paid everything off. My score keeps creeping up, and I don’t want this inquiry or card to drop my score. Help me! – Christine
It’s OK! Take a deep breath. Let it out slowly. You may have done a good thing without knowing it. Now let’s figure out exactly what this is going to mean.
Before we get started, though, I want to clarify what you said about using your debit card directly linked to your credit card. I am assuming that what you meant to say is that your debit card is directly linked to your bank account since you say in the beginning that you do not have any credit cards.
To answer your question – no, you can’t stop this. While rebuilding credit can be a painfully slow-moving process, some of the things that adversely affect our credit can happen in a flash. The moment you “signed up” for what you thought was a bonus card but instead was a credit card, your credit report was hit with a hard inquiry.
“Hard” as in, it’s going to affect your score immediately. This might mean a dip in score of a few points. I say “might” because what happened at the same time is that your available credit increased by whatever the card issuer offered you. So, it may be a wash over the next couple of months.
See related: How credit cards impact your credit score
If you bought something with your new card, pay it off
A few things to know: when you applied for the card, whatever you were buying was charged to that card, and you now have a balance on that card. Since you say you have been careful with your spending, that leads me to believe you were fully prepared to pay in full out of available funds whatever it was you were purchasing.
So, first things first – go online and pay the balance on the card now or as soon as you possibly can. Don’t wait for the statement or its due date to come around. You should be able to call the customer service number on the card or the documentation you received when you applied and get a payment address.
This will do two things – bring your account balance to zero and increase your available credit to whatever was offered to you. These two things will be good for your score, since credit utilization is the second most important factor in FICO’s scoring model. An added plus is this should also mean you won’t incur – or pay – any interest on the purchase. Your score doesn’t really care about that. But you should always care about that for your own financial well-being.
While I know your instinct right now is to cancel the card immediately, I do not want you to do that. If you do, your score will take another hit because of the decrease in available credit. Because this all happened so recently, if you were to cancel the card now all of the bad things would happen at once and your score would be affected even more adversely. So, do not close the account.
Instead, I suggest you use the account over the next few months for purchases you already plan to make and would have paid cash for, staying well below your credit limit. Even if you pay the balance in full every time, if you charge too much your score will reflect that. So, aim for no more than about 10 to 20 percent of your total available credit. And be extra diligent to pay your balance in full, on time, every time. If you can pay it early; that’s even better.
Add some new positive data to your credit report
Let me suggest a new tactic for you to follow to rebuild your credit. You say you have divorced two years ago and haven’t used credit since. This leads me to believe your slow and steady score increase is due to the aging of some old negative history brought on by the divorce. Your score will improve as these items age and eventually fall off your credit report altogether.
But you can hasten the recovery process by adding new positive information to your credit report. The positive data will add to your score while the aging process reduces the drag from old damage. The combination of the two will zip your score recovery and in much less time, you’ll have a score you want.
All of this won’t happen overnight, but you may be surprised how quickly your score will recover, even if it takes a small hit from adding new credit for a month or two. Once you show you can handle the new credit, the initial hit for new credit will reverse and begin building scoring points. Continue doing the things you’ve been doing, but be very cautious about signing up for anything right now, even a retail store card.
Perhaps a new card every three months or so would be ideal. Once you have determined that your score is back to where it was or hopefully even higher, you can think about diversifying your credit with other types of financing.
Remember to keep track of your score!