When you receive a new credit card in the mail, it comes with instructions on how to activate the credit card account as well as information about your credit limit. For the most part, you’re instructed to call a toll-free number or visit a website, where you verify that you, the cardholder, received the card and are ready to use it. Unless the card is activated, it can’t be used for purchases or cash advances.
You might think that credit card activation is just a formality, and you don’t need to do it if you change your mind about getting the card. You might think you can simply throw it away or activate it at a later time. Unfortunately, that’s not the case. Not activating a card can have consequences for your credit report. Let’s take a look at what you need to know about applying for and activating a new credit card.
Applying for a New Credit Card
Before you apply for a new credit card, it’s important to carefully think through the situation. Just the act of applying for a credit card has an impact on your credit score and credit history if there is a hard inquiry. New credit only accounts for about 10 percent of your score based on reports from credit bureaus, doesn’t have a huge impact, and won’t affect your FICO score after 12 months. However, there’s still that ding, and the application will appear on your credit report.
It’s a good idea to think about why you want the credit card and how you think you might use the credit card. If your credit file is thin, or if you’re trying to recover from a past mistake and repair your bad credit, a new credit card can actually help your situation. Using a credit card can help you boost your credit score by giving you the chance to use credit, making purchases and paying them off. As you make on-time payments and keep your debt level low, the impact on your credit score will be positive. You might also want a new card so you can do a balance transfer and get a lower interest rate on existing debt.
On the other hand, if you just want another credit card because you hope to be able to boost your spending power, it’s a good idea to rethink the situation. By the time your card arrives, you might have cooled off and you’re not interested in credit card activation. Unless you have a plan and purpose for your credit card, consider holding off on applying until you’re ready.
And if you do apply and decide you made a mistake, don’t just toss the card without activating it. You might be surprised at the negative consequences.
What Happens If You Don’t Follow Through with Credit Card Activation?
With a new card, the account opens when you’re approved—not upon your activation of the card. By the time the new card reaches your mailbox, your account has already been open for several days, and if the card has an annual fee or monthly maintenance fee, such as certain credit-building or repair cards, it may have already been charged to your account. Cutting up the card or simply not activating it doesn’t close the account, and it doesn’t make any associated fees go away.
Even if the card doesn’t charge a fee until the second year, if you don’t activate the card, it will still charge the annual fee by next year. You won’t be aware of the fee—and that means you won’t pay it, starting a chain of events that can have a severe impact on your ability to get other credit later.
And, of course, if you decide you want the account, you won’t be able to use your credit card unless you activate the card. You can’t even use your credit card number online until you’ve activated your card. Once you follow the instructions on your new credit card, you should be able to use it as soon as the issuer verifies that the card is active.
What About Replacement Credit Cards on a Long-Standing Account?
At some point, your existing credit card will expire. When that happens, your issuer will send you a new credit card with a new expiration date. Maybe you decide you don’t want that account anymore. Merely avoiding credit card activation won’t help you change the situation. Cutting up or not activating your replacement doesn’t erase the balance on your existing account, and it doesn’t close the account with your card issuer.
If you’re unhappy with new terms, the best thing to do is call your card issuer and talk to them about lowering your rate or any other available options you might have to find something you’re more comfortable with.
Not Activating Your Credit Card: Impact on Your Credit Report
It might seem like you’re in the clear if you don’t actually use your credit card. After all, if you don’t run up a balance, there’s nothing to pay.
The reality, though, is that there are some consequences on your credit report. This is especially true if some sort of fee is involved. When a fee, such as an annual fee or monthly fee, is charged, it goes right on your credit card balance. If you don’t make a payment on it, that’s reflected on your credit report and can have an impact on your credit score. Your payment history is the most important part of your credit score, so missing payments can have an outsized impact.
Don’t forget, too, that if you eventually cancel your credit card, that can also affect your credit score. When you were approved for a credit card and the new account was opened, you increased your available credit. That can actually boost your credit score.
But if you cancel this new credit card before you even use it, all of a sudden, you’ve reduced your available credit. If you carry balances on other cards, your credit utilization ends up being higher as a result of the canceled card, unless you take steps to reduce your debt. Now, all of a sudden, you’re back to where you were before, and your credit score could be impacted negatively.
Canceling a Credit Card Before Activation
At some point, if you don’t go through the credit card activation process, there’s a good chance your credit issuer will call you to ask if there’s a problem. You can ask about the cancellation process at that time.
However, it’s usually a better idea if you cancel the card ahead of time—as soon as you figure out that you don’t want the new credit card after all. Some credit card issuers require a request in writing, so find out exactly what you need to do to cancel the account. Before you do that, research what impact closing that account may have on your credit score and why.
Closing an account decreases your available overall credit and increases your credit utilization ratio. The more of your available credit is being used, the lower your credit score. If you’re closing a long-term account that you’ve had for years, you’re also harming your credit account age—another factor that can harm your score.
The best bet to avoid all of these peripheral issues is to simply avoid applying for credit at all unless you’re sure you want or need it. The best time to decide you don’t want a credit card is before you ever apply for it.