Alright, so you applied for a credit card for its welcome bonus and just got approved. Hurray! Hold on… did you just see that the annual fee is sky high or requires a certain amount of minimum spending that you can’t or won’t reach? Perhaps you were a little hasty and now don’t want the credit card.
You may think that it’s just as easy as not activating the card, but there are actually a few things to take into account. Applying and being approved for a credit card can affect your credit score but if you don’t activate your credit card, it doesn’t directly affect your credit. However, there are other factors which might cause you problems down the line.
Inactive card =/= inactive account
Once your credit card application is approved, your account is considered open even if you don’t activate your credit card. An important thing to remember is your credit card’s annual fee. Usually, credit card providers would charge an annual fee on your first bill then afterward, every year on the same day your account was opened. This fee would usually show up in your balance and if you don’t check your account, this fee can become a missed payment.
Although you didn’t activate your credit card, your account is still active and thus, you need to pay the annual fee. If there is a lapse in paying what you owe, this can negatively impact your credit score. Remember that payment history is what your credit score is for and not realising that you have to pay the annual fee and letting it snowball into debt, is very bad. Having a less than ideal credit score can make it difficult for you in the event you need to apply for a loan in the future.
If there’s no annual fee, can I just leave my credit card inactivated?
After making sure that your credit card doesn’t charge an annual fee, you might think that your problems are solved. Do note that some providers only waive annual fees if you charge a certain amount on your credit card annually so always read the fine print!
In the event that the credit card doesn’t have any fees, you might notice that there’s a positive effect on your credit. This is due to your credit utilisation which is the amount of credit you have compared to the credit you use. Having a credit card increases the amount of credit you have and not using it will lower your utilisation. Low credit utilisation positively impacts your credit score but keep in mind that in order to maintain a high credit score, it’s best to keep utilisation between 10-20%, instead of 0%.
| See more: Maintain or better yet, improve your credit score? Here's how |
Can I close the account before I receive the card?
If you changed your mind before you even receive your card in the mail, call your card provider to cancel it instead of just leaving it be. As soon as you decide you don’t want the card anymore, call the issuer and let them know that you haven’t activated the card and you’d like to close your account. Always check to make sure that the balance on the account is zero especially if there’s an annual fee and if there is, ask if you can have the annual fee waived. Make sure that you ask for a confirmation letter to ensure that the account was closed without anything owed.
Closing your account could impact your credit score in that you’ll have less available credit. This could increase your credit utilisation thus, lowering your credit score.
Nothing bad will happen if I don’t activate my card, right?
If you don’t activate your credit card, logically, you wouldn’t pay much attention to your monthly statements, right? Not monitoring your monthly statements could mean not catching any fraudulent charges. Your credit card number could be used for a test run by someone dishonest where a small purchase is made. If there’s no report of the crime, the criminals would know that this card is safe to exploit.
The other thing about not monitoring your monthly statements is that you might accidentally miss a payment that you’ve forgotten you’ve charged onto this particular credit card. This includes subscriptions, gym memberships and others, not just the annual fee.
| Related: Credit card myths every Singaporean needs to stop believing |
Getting approved for a credit card is a great step in increasing your credit score but in the event you change your mind, it’s best to cancel it before anything untoward happens. Ignoring it won’t make the problem go away but rather, could make matters worse. If it’s the annual fee that’s a deal breaker for you, you can always ask the card issuer for a credit card that doesn’t have one.