You signed up for a credit card, however when it found its way to the mail, you had second thoughts. However , credit cards don’t come with a return guarantee.
You need to activate a credit card before utilizing it, so it may be tempting to consider that the?unactivated card won’t?affect your credit report. However, your brand-new credit card account was opened as soon as you were approved, and also the issuer might have already started?reporting it towards the credit agencies. Activation simply provides you with access to use the card; the only way to get rid of the account is to cancel it.
To cancel or otherwise to?cancel?
Before you select whether to cancel your unactivated charge card, consider the following:
- APR:?The card’s APR shouldn’t matter if you pay off balance every month in full, but a high APR might be a problem if you are planning to?carry a balance.
- Rewards:?If the credit card offers bonus rewards while you shop at particular retailers or spend in a few categories, it might be worthwhile to keep it and?maximize your rewards. However, if the card’s rewards are basic, you may be better off finding?a card with better rewards.
- Fees: A card by having an annual fee is worth it only when you’re earning enough rewards to offset the cost. Another fee to watch out for is the foreign transaction fee. If you travel internationally often, using a card that charges the typical 3% foreign transaction fee can be costly.
After test, the card might not be as bad as you thought. But when you have a much better card, or want to make an application for one, it might be better to cancel it.
How canceling affects your credit score
Closing an unused credit card account may have a negative effect on your credit. Here are two things to bear in mind, particularly if you’re thinking about applying for a different card:
- Credit utilization ratio:?Your credit utilization ratio?may be the amount of outstanding debt on your credit cards in accordance with the accessible credit. If you close one account, you wipe out that available credit. This could cause your credit utilization ratio to go up and may hurt your credit score.
- Credit inquiries:?Applying for a charge card?triggers?a tough inquiry in your credit report, which could lower your credit score. Should you open credit cards, cancel it after which open a new one shortly thereafter, you’ll trigger two hard inquiries within a short timespan. This can?result a bigger dip in your score and can also signal to lenders that you’re a risky borrower. It’s a smart idea to wait a minimum of six months between credit card applications, so even if you’re unhappy with your current card, don’t proceed carelessly and get a new one right away.
- Length of credit rating:?The longer you retain credit cards?open, the greater. Every time you obtain a credit card, it lowers the average age of your credit accounts, which can decrease your credit score.
Applying for and shutting charge cards can hurt your credit rating in the short term, but you can rebuild your credit by making payments promptly, keeping your credit utilization ratio below 30% and spacing out credit applications.
Why you might want to ensure that it stays open
Even if you don’t want to use your brand-new card for daily?purchases, you can still use it to construct credit. By keeping it active with a small recurring payment, such as a Netflix or gym membership, you can still establish positive credit rating while using another card for the everyday swiping.
Note, however, this strategy?isn’t beneficial when the card has an annual fee. It might be useful to?subscribe to text or email alerts so you don’t accidentally forget to pay the total amount off each month.
The takeaway:?If you’re unhappy with your new credit card, don’t panic. While canceling it might hurt your credit rating temporarily, it might be the best choice. However, using it sparingly when you use another card for the everyday purchases will help you build your credit over the long run.
Ben Luthi is really a staff writer covering personal finance for?NerdWallet. Follow him on Twitter @benluthi and on Google+.
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