You may think it unlikely, but It is actually not an unusual situation for people to have been preapproved for a card and casually applied, and then decided that they do not want the card, or the responsibilities attached to it, after all. But, the question is: “If you apply for a credit card and then you decide you do not want it, will it hurt your credit score if you do not activate it?”.
Well, yes. However, you have to understand that any impact done to your credit score has already occurred. Meaning, it’s not a matter of whether not using it will hurt you, but should you keep it.
In this article, we will take a look at some of the reasons why you should keep the credit card even if you simply applied out of impulse; to better decide if it is worth holding on to the card even if you do not want any part of it.
The Impact Has Already Happened
While most people assume that their credit will only be affected when they use credit, that is not actually the case. In the case of unwanted or unactivated credit cards, the credit card issuer has already looked into your credit before approving you for the card. And at that point, your credit score was already impacted.
This is because whenever you apply for credit, a credit inquiry happens. During a credit inquiry, your creditor or lender will pull your credit report from a Credit Reporting Bureau- Experian, Equifax, and TransUnion- and use the information therein to decide whether to extend you the credit or not.
Fortunately, “New Credit”, where credit inquiries fall into during credit score calculations, only accounts for 10% of your score and is one of the lesser influencers. In fact, a single credit inquiry, particularly a “Hard” inquiry, will damage your score by as much as five points.
However, if you had applied for several credit accounts in a very brief window of time and several lenders had made an inquiry into your credit file, it could end up damaging your credit more than you think.
While credit inquiries are not necessarily “bad”, having too many in a short time frame could send a message to your prospective creditors and lenders that you may be overextending yourself by taking on too much credit. Your credit score would then reflect this potential risk.
Fortunately, however, the credit scoring process does take into account the possibility that you are shopping for the best terms if you are applying for a major consumer loan such as a home mortgage, student loan, or car loan. This means that some credit scoring models, such as FICO and VantageScore, will view several of these inquiries within a window of about 14 to 45 days as one inquiry. While all the inquiries will show up on your credit report, they will be counted as one for credit scoring purposes.
Additionally, hard credit inquiries will remain on your credit report for two years. But, most credit scoring models will only include them in the calculation for a year.
The Card Can Help Improve Your Credit
It is generally recommended that you consider whether you need the additional credit before you apply, but there is no sense in crying over spilled milk. In any case, any minor negative effect on your credit score from the hard inquiry will be overcome in a few months as you engage in positive credit behavior, such as paying your bills on time.
But, even if you do not want the credit card, consider the potential positive impacts on your credit profile if you ever decide to activate it and use it responsibly. For one, the new card can give you an additional line of credit which will increase the total amount of credit you have available to you.
For example, if you have two credit cards with a total credit limit of $30,000 and the new card offers you a $15,000 line of credit, the total credit available to you could be $45,000. But while you do not necessarily need the extra $15,000 credit line, this can actually help your credit score by lowering your Credit Utilization Ratio.
Credit Utilization Ratio is the percentage of how much credit you are using at any given time relative to the total amount of credit that is available to you. Credit utilization is one of the more influential credit score factors. In fact, for FICO credit scores, it accounts for 30%, making it the second-largest factor.
To put this into perspective, if you are using $15,000 on two cards with a total of $30,000 in available credit, your credit utilization rate is 50%. However, if you decide to activate the new credit card, which has a $15,000 credit limit, your credit utilization rate could become 33%- which is marginally lower.
While there is no official guideline to what constitutes a “high” credit utilization, most experts agree that you should never use up more than 30% of your available credit- especially if you want to improve your credit score.
Do understand, however, That while a new credit card could mean that you would be tapping into less of the total credit available to you, how your credit score would look like will still depend on how well you manage your finances.
The Bottom Line
It is worth mentioning that if you do not need the additional card and do not think that you will obtain any additional benefits from activating or using it, credit score-related or otherwise, you should consider canceling it. However, that is a different case if you have already activated the card. Canceling an already active credit card could end up hurting your credit score.
Not only are you reducing the total credit available to you by canceling the card, but you are also reducing the average age of your credit history- especially if you decide to cancel a seasoned credit card account.
If you are considering activating a credit card to build credit, but you do not want the additional responsibilities associated with having a credit card, you should consider employing the services of a credit repair company instead. Get your credit fixed without the risk of hurting your credit. Call us at 888-799-7267 to schedule a Free Consultation.
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