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New card, worse terms? You have options

Oct 04, 2010 | | Comments Comments Off

Dear Liz: I recently received a credit card to replace an existing one. The retailer that provided the card switched it from a Visa to an American Express. But the retailer also cut my credit limit to $1,000. My old limit was $10,000. Currently I have three other major credit cards with available credit limits totaling more than $10,000. My FICO scores are excellent and I always pay my balances in full. Could you please advise whether I should activate this new card or cancel it? Would it hurt my FICO scores if I cancel the account?

Answer: The new card is probably showing up on your credit reports already, whether it’s activated or not. If you were to close it now, you would risk hurting your good scores.

That’s not to say that you can never close an account. But if you’re trying to improve your scores, or you’ll be in the market for a major loan such as mortgage in the near future, you generally want to avoid closing accounts.

If you don’t activate the card, you might not receive the benefits that typically come with a co-branded retailer card, such as coupons and discounts. If you’re a fan of the retailer, you’ll probably want those goodies.

You might try contacting the retailer and letting it know that you’re unlikely to use the card because the credit limit is so low. Let the retailer know you’re concerned about your good credit scores, since you know you should use 10% or less of your card’s available credit to preserve them. That would mean any shopping spree would have to end at $100.

That might win you a higher limit, or it might not. If it doesn’t, feel free to substitute another card that treats you a little better.

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