Opened a Store Credit Card During the Holidays? Here's Why Canceling It May Not Hurt Your Credit Score

At this point, a lot of people are assessing their holiday debt and coming up with plans to pay it off. While doing your shopping this past season, you may have opened a store credit card. It's common for store cards to offer a nice discount on your initial purchase, and that's something you may have taken advantage of to reap savings.

In hindsight, though, you may be regretting your decision to open a store credit card. Not only do these cards come with limited usage (you can usually only swipe them at the retailers that issued them), but they tend to charge exorbitant interest rates. So you may not want the temptation to rack up a balance.

If you have a balance already, your best bet is to knock it out as soon as you can. From there, you may want to cancel your card as soon as it's paid off.

Closing a recently opened store credit card could be a smart move if it helps you avoid added spending. And the good news? It might not even do damage to your credit score.

Closing a recently opened account may not be a problem

You may have been told that closing a credit card account has the potential to hurt your credit score. And in the case of a long-standing account with a higher credit limit, that might be true.

The length of your credit history makes up 15% of your FICO® Score (the most commonly used credit scoring method). So if you've had a credit card for 15 years and decide to cancel it, that might eventually bring your score down.

However, closing a credit card may not have a near-term impact on your credit score. Even if you close your credit account, it can remain on your credit report for up to 10 years. And as long as that account is listed there, it's factored into the average age of your credit history. In this case, we're talking about a short-lived account, so that may not be such a big factor either way, but it's something good to know.

Credit utilization is something to be mindful of

Another big factor that goes into calculating credit scores is utilization, or the amount of available credit you're using at once. And under the FICO scoring model, utilization constitutes 30% of your score -- twice the impact of the length of your credit history.

If you close out a store credit card, you lose spending power. That could also drive your credit utilization upward.

Let's say that across all of your credit cards, you owe $3,000 on a total credit limit of $10,000. That's 30% utilization, which is generally favorable for your credit score. Above that level is where things get dicey and your score might start to decline.

Well, if you cancel a store credit card that's contributing $1,000 to your $10,000 limit, you're down to $9,000 in total spending power. A $3,000 balance puts you at 33% utilization instead of 30%. It's not a huge difference, but it's not as great.

If you're doing a good job of paying off your credit cards on a whole, and you're not carrying a particularly large balance relative to your total credit limit, then canceling a recently opened store credit card may not hurt your utilization. Otherwise, just be mindful of this pitfall.

That said, if you're convinced your $1,000 store credit card limit is going to drive you to rack up an extra $1,000 in debt that takes you a long time to pay off, then you may be better off canceling. A $4,000 balance (your existing $3,000 plus an extra $1,000) brings your utilization up to 40%, which is a worse scenario than the 33% we just talked about.

Should you close a long-standing account with unfavorable terms?

We just learned that closing a recently opened credit card account shouldn't really harm your credit score if that card didn't have such a high credit limit. But what about an account you've had open for a long time -- one that does give you a lot of spending power?

In that case, credit score damage could ensue. So for the most part, the only reason to really close a long-standing account is if you're not using your card and it's charging you an annual fee.

Otherwise, it pays to put a small recurring charge on that card and pay that bill every month. Doing so should be enough to keep your account active and keep your credit score from falling.

Of course, there are other things you can do to keep your credit score in good shape. These include paying bills on time and keeping existing credit card balances low. But all told, hanging onto a recently opened store credit card probably won't do much good for your credit score. So if you're worried that it will tempt you into extra spending that ends up being costly, you're probably better off closing out that account.

And while you're at it, you may want to pledge to steer clear of store credit cards altogether, which means not opening one during the next holiday season.