What if I change my mind after applying for a credit card?

You see an ad for a credit card, and at first glance, it looks like a good deal. It is a prestigious card offering valuable reward points. You like the idea of ​​paying all your monthly expenses with the new card, accumulating points, and dipping into your bank account to pay them off at the end of each month. You ask for the card before you read the fine print. It’s only when you know more about the annual fees and terms and conditions that you decide it’s not the right card for you. Here’s what happens next and what you can do to make the most of the situation.

Expect a credit check anyway

The credit card company has no way of knowing you’ve changed your mind until you make it clear. They likely performed a credit check within minutes of receiving your request. It’s worth noting that a thorough credit check (like the one creditors do before approving an application) has likely reduced your credit score by a few points at most. A few months of regular payments on all of your financial obligations should push that score up.

Read more: What is the difference between hard and soft credit checks?

If your request is approved

Let’s say you get a notification that your application has been approved and your new card is in the mail. Because you can’t put genius back in the bottle at this point, you might as well look on the bright side: your credit score and payment history were strong enough to qualify, which means you’re on the right financial path.

But being on the right track doesn’t mean you have to use the map. Here is an overview of your basic options.

Call the credit card company

If you’re sure you don’t want the card, call the company and explain your concerns. For example, if the annual fee is holding you back, ask them to waive it.

If they decline, ask if you can downgrade the card to a card at no cost. A high annual fee is likely associated with a card that comes with full functionality. Find out how to switch to a less advanced card at no cost. The important advantage of downgrading a credit card rather than canceling it is that your credit score will not be affected.

Do not activate the card

If the reason you don’t want the card anymore is because you’re worried about spending too much, don’t activate it. Credit cards come with a sticker, and on that sticker is a phone number to call to activate the card. Leave this sticker in place and never make the call. That way you can’t use it. But it should be noted that while a credit card has an annual fee, you will still be responsible for paying those fees whether or not you activate the card.

The potential danger of not activating the card

The annual fee usually appears on your first bill. If you do not activate the card, you may not see the first invoice and the charge will become a missed payment.

Payment history is the most important factor when it comes to your FICO®

Score, and even a single missed payment can hurt your score. If you decide not to activate the new credit card, be sure to check the mail for the bill. If you’ve signed up for eStatements, keep an eye on your email.

Read more: The Complete Guide to Understanding Your Credit Score

The advantage of keeping the card

Even if you never plan to use the card and never activate it, the credit card company considers your account open. An open account can improve your credit score by improving your credit utilization rate.

This is how it works:

• Suppose you already have two open credit card accounts, each with $ 5,000 available credit, which gives you total available credit of $ 10,000.
• You owe $ 2,000 on one of the cards.
• To calculate your credit utilization ratio, a lender divides the total amount you owe ($ 2,000) by your total available credit ($ 10,000) to get a ratio of 20% ($ 2,000 ÷ $ 10,000 = 0.20).

Now let’s say you keep the new credit card but never activate it:

• You now have a total credit of $ 15,000 ($ 5,000 on three cards).
• A lender divides the total amount you owe ($ 2,000) by your total available credit ($ 15,000).
• Your credit utilization rate drops to 13% ($ 2,000 ÷ $ 15,000 = 0.13).

The rate of use of credit is important because creditors feel more secure lending you money when they see how you are managing the funds already available. The general rule is to keep credit usage below 30%, although the lower the better.

One thing to keep in mind: If you never activate and use the card, the credit card company may cancel it at some point. It costs a credit card company money to keep accounts open, and accounts never used are considered dead weight. If your card is canceled, your credit score may be affected.

Cancel credit card

If all else fails and you can’t find a way to make the card work for you, you can cancel it. Before doing so, however, be aware of the possible consequences of canceling the card:

• You will have less credit available. Every time you take on new debt, your credit utilization rate is higher.
• Your “credit mix” can be impacted. Typically, lenders want to know that you can handle many types of credit. If you cancel your only credit card, it could hurt your credit score.
• Canceling too quickly can set off a red flag for lenders. Even if it doesn’t affect your credit score, lenders may wonder if you are an impulse borrower or if financial problems led to the cancellation.

If you are sure you want to cancel the credit card, do so before the end of the first billing cycle. The credit card company may not report the cancellation to the credit bureau if it is canceled early enough. But if the card has an annual fee, you may still be forced to pay for it whether or not the card is canceled.