Q&A: Card closure reasons don’t matter

Dear Liz: Does the reason for a credit card closure affect credit scores? I’ve had retailers close a card simply because it hasn’t been used for a period of time, not because I mishandled the account.

Answer: Credit score formulas don’t distinguish between accounts closed by the consumer and accounts closed by the issuer. The closed account can still ding your scores, but you won’t suffer an extra blow because the decision to close wasn’t your own.

Q&A: Is it possible to have too many credit cards?

Dear Liz: I have accumulated too many credit cards, sometimes to get bonus frequent flier miles. The frequent flier miles cards all have annual fees. I always pay cards in full each month.

My credit score is 800-plus every month. I have heard that your credit score is dinged when you close credit accounts. Is that true and by how much? How do you recommend reducing the number of credit cards?

Answer: Yes, closing cards can hurt your credit scores. The “how much” question is impossible to predict and will depend on your credit situation as well as how you go about reducing your card portfolio.

Keep in mind that there is no such thing as “too many credit cards” as far as credit scoring formulas are concerned. As long as you pay your bills on time and use only a small portion of your available credit limits, you can have lots of cards and great scores.

However, monitoring a bunch of different cards can be overwhelming. You also don’t want to keep paying annual fees for cards that aren’t delivering sufficient benefits.

If the fees are your primary concern, identify the cards you want to close and ask the issuers if you can get a “product change” to a no-fee card. This typically won’t affect your scores because the account is simply being transferred rather than being closed and reopened.

If you need to thin the herd, be aware that credit scoring formulas are sensitive to credit utilization, or the amount of your available credit you’re using on each card and overall.

If you have multiple cards from the same issuer, ask if the credit limit from the card you’re closing can be added to one of your remaining cards. Another option is to close only your lowest-limit cards.

You won’t want to close any cards if you’ll be looking for a major loan, such as auto financing or a mortgage, in the next few months. Hold off until after you’ve got the loan.

Also try to use up or transfer any points or miles you’ve earned on the cards you plan to close because those rewards may disappear at closure.

Q&A: Should you close a credit card?

Dear Liz: You recently wrote about how closing credit cards can hurt your credit scores. I’m wondering what impact closing a business credit card would have on my personal credit score.

For many years I have been working in the film industry under contracts with my personal services loan-out company. My company has two credit cards, including a travel rewards card with a hefty annual fee. This card has been useful to me because my job involved a lot of international travel. But as I’m now nearing retirement and traveling less, I’m considering closing that account. Will closing the card affect my personal credit scores?

Answer: The answer lies in your credit reports, which you can view for free at AnnualCreditReport.com. (Type that address into your browser rather than searching for it, because the top results are likely to be sites that want to charge you for credit monitoring. If you’re asked for a credit card, you’re on the wrong site.)

Typically, business cards don’t show up on personal credit reports and thus won’t affect your credit scores. But check to make sure.

Before you actually call to close the card, however, you should know that the company probably will want to keep your business. You may be offered a hefty wad of rewards points as an incentive to keep the account open. The points could be worth enough to offset some or even all of the annual fee.

Also, review all of the benefits the card offers. Many premium cards offer various credits to offset the fee, and not all of them are related to travel. Even if those aren’t enough to entice you to keep the card, you may want to use the credits before shuttering the account for good.

You also may have the option to swap your card for one with a lower annual fee, something known as a “product change,” so you’ll also want to investigate whether one of the issuer’s other cards might be a better fit.

Q&A: Closing credit cards could hurt scores

Dear Liz: If I have a few credit cards, why would my credit be negatively affected if I paid off and closed some?

Answer: Your credit scores won’t be negatively affected by paying off your card balances — quite the opposite. Paying off debt improves your credit utilization — the amount of your available credit you’re actively using — and that’s a powerful way to boost your scores.

If you close accounts, however, that would reduce your available credit, and that’s bad for your credit scores. That doesn’t mean you can never close a credit card, but you should do so sparingly and try to keep open your cards with the highest limits, if possible.

Q&A: What happens to joint credit cards after your spouse dies?

Dear Liz: My husband died last year and we have three credit cards in his name with me as authorized user. When applying for new credit, do I still use his name or my name now? And should I remove his name and put my name only on all accounts?

Answer: You’ll apply for new credit in your own name, using your own credit history and income. If your credit cards are joint accounts, you can simply ask the issuers to remove your husband’s name.

Here’s the thing, though: Few credit cards these days are joint accounts. Typically there is a primary cardholder and an authorized user. When the primary cardholder dies, credit card issuers usually close the account, often within a few weeks.

Issuers normally find out about the death from the person settling the estate or from the Social Security Administration. Social Security, in its turn, usually learns about the death from the funeral home or from the person settling the estate.

It’s possible there has simply been an oversight, but you’ll want to make sure your husband’s death has been properly reported to Social Security and his creditors. If you are an authorized user rather than a joint account holder, you may find the card issuers will work with you to get replacement cards although you may have to settle for a smaller credit limit if your income has dropped (which is unfortunately a common situation for survivors).

Q&A: Don’t close that credit card

Dear Liz: I’m debt free with a comfortable income and excellent credit. I just got a new cash-back credit card. I have three other credit cards, including one affiliated with a retail chain that I no longer use. Should I close the retail chain card so I only have three cards? Should I have fewer?

Answer: More is often better when it comes to your credit scores. The scoring formulas may temporarily drop a few points when you apply for a new card, but having at least four active credit accounts can help you achieve and keep high scores.

The formulas won’t punish you for having too many accounts or too much available credit. You could get dinged, though, if you use too much of that credit at one time. To avoid that, try to keep your balance on each card below 10% of its available limit.

Q&A: Establishing credit without debt

Dear Liz: My wife and I are retired. We have always paid our credit card balances in full each month and have zero debt. A banker recently advised us to establish credit and make timely monthly payments in order to maintain a high credit rating in case we need to borrow in the future. I feel uncomfortable taking money from our investment portfolio to service debt, but I also wish to maintain our high credit rating.

Answer: You don’t need to take on debt or carry credit card balances to have good credit scores. Using a few credit cards lightly but regularly is enough.

Taking out an installment loan can help boost your scores if you’re trying to repair troubled credit. You also may need an installment loan on your credit reports if you want the highest scores possible. But the highest possible scores only give you bragging rights, not better rates and terms on borrowing.

If you’re concerned about maintaining your credit, consider monitoring at least one of your scores. Your bank or one of your credit card issuers may provide a free score, or you can sign up on one of the many sites that offer them. That will give you a better idea of how lenders view you as a credit risk and can help you see which behaviors help and hurt your scores.

Q&A: How to get a debt collector to stop calling about a bogus bill

Dear Liz: I’m getting daily robocalls from a debt collection agency, even though a check of our current credit reports shows that we owe no one anything. (My husband and I both have stellar credit.) Google tells me that this collection agency is known for shadiness and that the Consumer Financial Protection Bureau has fined it for illegal debt collection practices and repeated violations of consumer reporting rules. I want to make these annoying daily calls stop (I never answer) but I worry that engaging with this company at all, for instance with a letter telling them to go away, will just cause more problems. What’s the best way to handle this kind of situation?

Answer: Debt experts sometimes advise against contacting collection agencies if you owe money, can’t afford to pay it back and are worried about being sued. The concern is that any response from you will trigger increased efforts to collect the money.

Since you don’t owe anything, though, there’s nothing to stop you from trying to end these annoying calls.

The CFPB recommends sending a letter to the collection agency demanding to know more about the alleged debt, including why the collector thinks you owe it, how old the debt is, how much is owed and details establishing the collector’s right to collect. The CFPB has a sample letter on its site you can use. Ideally, this letter would be sent within 30 days of the first phone call to preserve your rights under federal law, but there’s nothing stopping you from sending it at any point.

Once you have information about the supposed debt — or if the calls continue and the agency hasn’t responded — you can send a second letter telling the agency you don’t owe the money and to stop contacting you.

Q&A: Credit report mistakes are common. Here’s how to fix them

Dear Liz: Two of my credit card issuers have drastically lowered my credit limits. They blamed my credit report at Equifax. At first, Equifax could not even find my report. I had to send paperwork to verify that I even exist. It turned out that my credit file had some inaccuracies. One of the credit card companies restored the credit limit on one of my cards but kept the lower limit on the other card. I have filed complaints with the Consumer Financial Protection Bureau and would appreciate any advice as I am confused and upset.

Answer: That’s understandable, and you’re not alone. Problems with credit bureaus topped the CFPB’s list of consumer complaints in 2022.

You did all the right things: getting a copy of your credit report, disputing the errors, following up with the credit card companies and filing a complaint with the CFPB when your credit limits weren’t restored. The CFPB will reach out to companies to help facilitate a resolution.

If that doesn’t work, consider contacting your local congressional representative. These lawmakers typically have constituent services staff that may be able to help.

You should check your credit reports at Experian and TransUnion in case the errors aren’t limited to a single bureau. If the inaccuracies stem from possible identity theft, consider freezing your credit reports at all three bureaus to make it harder for scam artists to open new accounts in your name.

Q&A: How to help someone else build credit

Dear Liz: My 30-year-old son lives in Southeast Asia. He has some U.S. bank accounts but no U.S. credit cards. If I add him to my credit card, will that help to establish credit? Or is there another way for him to start getting credit in the U.S.? At some point, he and his wife will move back to the U.S.

Answer: Adding someone to your credit card as an authorized user can be a great way to help them build credit. Your history with the card is typically added to the other person’s credit reports and used in calculating their credit scores. If you can add him to more than one card, even better. As long as you use the cards responsibly — paying the bills on time, using only a fraction of the available credit — his scores should benefit.

You don’t have to give your son access to the cards for this to work. If you do, keep in mind that authorized users aren’t responsible for paying any charges.

Authorized users typically can be added or removed with a phone call to the issuer. You also can add an authorized user online by logging into your credit card account. But removing them may require you to pick up the phone.

Your son can build credit in other ways, including credit builder loans and secured cards, but those may have to wait until he has a U.S. address.