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Dear Dr. Don,
I applied for a Blue card from American Express. I was looking to do a balance transfer from my Chase credit card, which
had a high annual percentage rate. The credit card was approved but the balance transfer was not.
I have not activated my new card and am thinking of canceling it. Will this affect my credit score?
-- Priscila Pecuniary
Dear Priscila,
A credit score is derived from the information on your credit report. You opened the account, regardless of whether you
activated the credit card, and your credit report will reflect it and a decision to close the account.
The graph below shows how the information in your credit report is weighted in arriving at a credit score.
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| Elements of your credit score |
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Closing the account will affect your credit score, but one negative impact already took place. When you apply
for credit, the credit review process generates a "hard inquiry" on your account. This inquiry stays on your credit report for
two years, but only impacts your credit score for one year. That's the new credit component of the above graph.
The ratio of "amounts owed" to "credit lines available," known as your credit-utilization ratio, also impacts
your credit score. Even though you weren't approved for the balance transfer, you do have a new credit line and that credit
line reduces the aforementioned ratio. If you close the account, your credit utilization is back to where it was before.
In determining whether to close the account, figure out if you can live within your means while paying down the
balances on the Chase card. Also, consider whether you plan on applying for credit again over the next year.
If you don't expect to be in the market for credit and you plan to get your current balances under control,
canceling the card will be a short-term hit to your credit score that isn't worth agonizing over.
If you don't know your credit score or you haven't reviewed your credit report lately, you can get a free estimate
of your credit score using Bankrate's FICO Score Estimator. You also can
get free copies of your credit report(s) once each year at
AnnualCreditReport.com.
If you decide to cancel, try talking to Chase about getting a lower rate on that card before closing the
American Express account.
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