What happens if I don't activate a newly issued credit card?

April 3, 2009 2:49 PM

What happens if I don't activate a newly issued credit card?

I applied for a zero interest credit card just to have for emergencies. I had a year-long zero interest card previously when I lost my job for a few months and it saved my butt. Of course, the fine print said they could give me a different deal if they want regardless of the offer. I got the card today and it's only zero interest for balance transfers, not new purchases like they advertised. I have one other card with no balance so that deal doesn't mean much to me.

What is my best move in this situation? I keep hearing that you shouldn't close credit card accounts because it negatively impacts your credit score. Does that apply if I never activated the card? It's my guess that I applied for a credit line, the account is already active at this point and the card is merely the means to access that credit. Can I still get out this deal or should I just toss the card in a drawer and forget about it?

posted by bda1972 to work & money (9 comments total)

"Activating" the credit card just confirms to the issuer that you received it. Some issuers won't allow transactions on the account until that "activation" happens; other issuers treat the activation step as optional. In either case, activating the card has nothing to do with opening or closing the account in terms of your credit score.

Your credit account is already open, regardless of what you do with the plastic the issuing institution sent you.

" It's my guess that I applied for a credit line, the account is already active at this point and the card is merely the means to access that credit. "

That's fairly close to what the reality is.
posted by majick at 2:53 PM on April 3

For what it's worth, I have a card that I've never 'activated', but it still shows on my credit report as an open line of credit.
posted by theclaw at 2:56 PM on April 3

"Activating" the credit card just confirms to the issuer that you received it.

And provides the issuer with an opportunity to hard-sell you their credit protection insurance, which I suspect is mostly the motivation behind it.
posted by We had a deal, Kyle at 3:18 PM on April 3

Yes, it's an active account. My bank manager once signed me up for a card that I didn't know I had. I never received a physical card, which led to a confusing conversation a couple of years later with a Visa account rep who was just wondering if I was happy with the service and wanted to upsell me on something.

"I don't have a Visa card."
"Yes, you do."
"No, really."
"Yes, really."
posted by rokusan at 3:19 PM on April 3

You can't get out of this deal just because you haven't activated the card. The credit line is open and the only way to close this account is by calling customer service. As you seem to be aware, your credit will take a hit if you do close the account.

If I were you, I would just toss in the drawer. I did the same thing recently.
posted by special-k at 3:22 PM on April 3

Make a small purchase on it once a month and pay it off same month. Instant credit rating boost.
posted by By The Grace of God at 4:01 PM on April 3

your credit will take a hit if you do close the account

I was about to chime in on this, then I found this page, from Fair Isaac themselves:

How changes in “available credit” can affect FICO scores

If everything else remains the same, we would expect that a reduction in available revolving credit (or the closure of a revolving account) will either have no impact on the person’s FICO score or will cause it to decrease. In reality, the information on credit reports seldom stays the same. People use their credit accounts and they pay their creditors, leading to changes in their reported balances. At the same time consumers also open or close accounts, their existing accounts continue to age, and so on.

To restate what's on the page, they're taking all the credit limits on accounts and totaling them. They're taking all the amounts owed on accounts and totaling them. Consider the total amount owed as a percentage of total amount available (the limits). That's credit utilization, which is part of what goes into FICO.

the higher one’s utilization rate, the greater the risk that person will default on a credit account within the next two years

The catch is, closing an account reduces the total available without reducing the total balance, so it increases the apparent utilization.

Fair Isaac doesn't seem to think it's a big deal. Their really short version seems to be "Yeah, some people's scores will drop a little, but not many, and even if they do, not by much and not for long."

Thing is, if you just got that one card, and nothing else changed, my understanding is that your FICO would have gone up based on the new card. Cancelling it right away would put you back where you started, and no worse off. In Fair Isaac's view, it sounds like other payments you're making against other accounts might wash out any effect that adding and subtracting this one card would have anyway.

Cancelling it sounds like it would be fine. Throwing it in a drawer is probably mostly fine too, with the slight chance there might be a hassle if it were stolen.
posted by gimonca at 6:30 PM on April 3 [1 favorite]

As others have said, the card is not the same as the line of credit.

In some cases you can have multiple (an arbitrarily large number, in fact) of physical cards linked to and drawing against a single line of credit. This is common for business accounts. Typically you don't see lines of credit designed for a credit card without a credit card associated with it, but by not activating the card that's what you almost certainly have right now.

You can of course be sure of this by pulling your credit report — you are entitled to a copy once a year from the major reporting bureaus, so you might as well take advantage. Here is the FTC's official site on free annual credit reports. (Most sites offering "free" credit reports, including the one with the obnoxious TV ads, are not really free!) If you get one you will see all your open revolving lines of credit.

If you have no plans to use the card, ever, then I would get rid of it. Yes, it might lower your credit utilization a little bit, but it could potentially help other aspects of your credit profile (credit to income ratio?) and unless you are shopping for a mortgage or something right now, it's just not worth worrying about.

Alternately, if you just want to maintain the status quo, where you have the account but never use the card, you could just shred the card without activating it. This removes the theft risk, and if you ever do want to use the account for some reason, you can call up the issuer and get a replacement card sent out. I'm not sure how I feel about this — I think you really ought to decide if you're going to use the card and cancel it if you're not going to — but it's an option.

Just in general, I don't think it's really a good bet to ever plan on using a credit card as a "rainy day" fund source either. Unless you are in really desperate straits...but even then there are typically better sources of credit available, e.g. for medical bills the hospital's payment plans are almost always better than putting them on a credit card. Plus, my gut feeling is that if you know you have a CC with some very high limit in a drawer, that's going to be a big disincentive to saving up cash as your emergency fund, which is really what you should be doing. (At least, it would be for me, and I don't think I'm that atypical. It's tough enough to save as it is, you don't need to give yourself any excuses not to!) The main reason I'd never use a CC for emergencies is because, as you found out, they can basically change the terms on you at will, or based on ridiculous fine-print clauses in the agreement; what you thought was a 0% card could easily end up costing you a lot, once they realize you've bitten down on the hook and gotten a few grand in balance built up.
posted by Kadin2048 at 11:10 PM on April 3

Have you tried calling up the CC company and saying that this card doesn't have the terms you wanted? Threaten to close it (if you're planning not to) or never to use it. You might get lucky.

I agree that if you do decide never to use it, cut it up instead of putting it in a drawer.
posted by thebazilist at 11:19 AM on April 4