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Credit Cards

Q&A: Closing credit accounts doesn’t need to be a big deal

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Dear Liz: Your recent response to the person giving bad advice about closing credit accounts was truly a public service. Over the years, I have opened and closed many credit accounts. Only once was a credit card closed for non-usage by the issuer and there was no major degradation of my credit score. Never has one of my actions altered my score by more than a few points or for more than a few months at a time. Misinformed statements such as those made by that individual can confuse people who are new to the world of credit or unfamiliar with how it works.

Answer: Before the advent of credit scoring, your ability to get a new loan or credit card may have been affected by a notation on your credit reports that a previous account was closed by the issuer. Today, though, it doesn’t matter who closes an account and there’s no need to add a notation that you were the one requesting the closure. If you mishandled the account, that will be evident from the missed payments that would show up on your credit reports (and be incorporated into your scores). If you handled the account responsibly, that will also be evident on your reports.

As mentioned in previous columns, closing credit accounts can have a significant impact on your scores if you have a few accounts or major blemishes on your credit. Closing a card with a high limit can ding your scores more than closing one with a lower limit.

But people with multiple credit accounts and a history of managing credit responsibly aren’t likely to suffer significant or lasting damage to their scores when they close an account.

Q&A: Account closure caused long-lasting score drop

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Dear Liz: A reader mentioned recently their credit score dropped only four points after closing a credit card they had since 1981. Three years ago I closed a credit card that was over 30 years old and my credit score dropped 20 to 35 points, depending on the credit reporting bureau. My score hasn’t gone up since despite good credit and no late payments. Please remind readers that many factors go into a credit score when closing a credit card.

Answer: As mentioned in the previous column, the impact of a card closure varies depending on other information in your credit reports. If your scores are high and you have several other open credit cards in good standing, the impact is likely to be minimal. If your scores aren’t great, you have few accounts or you’re closing one of your highest-limit cards, the impact may be greater.

Also keep in mind that there are many different credit scoring formulas in use today, so you don’t have just one credit score: you have dozens. FICO and VantageScore are the two main providers, but lenders use different versions of these scores and, as you’ve noted, the results also vary according to the credit bureau they use.

Your scores constantly change because the underlying information in your credit reports changes. Even if you aren’t actively adding or closing accounts, the balances on your accounts typically change from month to month. Higher balances on credit cards can hurt your scores, while lower balances can help. Each month your accounts get a little older (which is a good thing) and more time has passed since your last account opening (also a good thing).

You can offset the impact of a closure by continuing to handle your accounts responsibly. You also might consider adding a new account to the mix if the point drop is significant enough to affect your financial life. If the score drop took you from the 800s to the high 700s, though, it probably isn’t worth the bother of trying to “fix” it since your scores will typically get you the best rates and terms on any credit you may need.

Q&A: Bad advice about closing credit accounts?

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Dear Liz: Recently, you advised someone that it was OK to cancel a credit card. When someone responded saying they did just that and got a 4-point hit on their credit rating, you again stated it was nothing more than a short-term glitch and not to worry.

And you call yourself a “certified” financial advisor? You have no idea what you are talking about. Maybe you should confine your answers to what you know. Just who are you “certified” through?

If a cardholder chooses to cancel a credit card, they have to be specific and firm with the card issuer that THEY canceled the card. The cardholder also has to demand that the card issuer send them, in writing, a letter stating that effect. Card issuers have no problem canceling cards. However, card issuers will post on credit reports that THEY canceled the card, which makes the cardholder look like a bad credit risk, whether that is the case or not. That will be posted on the cardholder credit reports for years. Which in turn, allows current and future card issuers to the cardholder to increase their interest rates and/or deny them higher credit limits or even a credit card. That makes it more challenging for cardholders to get decent rates on mortgages, auto loans and more.

You know nothing about credit cards, much less the credit reporting agencies. Stop giving people false information.

Answer: Your email address indicates you may be in the business of providing financial advice to others. If that’s the case, it’s critical that you keep up to date. Much of what you’ve written either isn’t true or hasn’t been true for decades.

The credit scoring formulas used by lenders don’t distinguish between accounts that are closed by the consumer and those that are closed by lenders. There’s no need to add a note to your credit reports explaining the decision was yours. No one would likely read it anyway, as lending decisions are highly automated.

You can learn more about credit scoring at a number of reputable financial sites, such as NerdWallet or Bankrate. Experian, one of the three major credit bureaus, also provides solid information for consumers. And you may be able to find my book “Your Credit Score” in your local library or online. Initially published in 2004 and updated four times, it was one of the first books to explain credit scoring to the public.

As for the certified financial planner designation, it’s offered by the CFP Board of Standards and is one of the more rigorous certifications financial advisors can get. You can learn more at https://www.cfp.net/.

Q&A: What do you do when an ex takes out a credit card in your name?

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Dear Liz: My ex-husband took out a credit card in my name without my knowledge. By the time I discovered it on a credit report, he had over $14,000 in charges on the card. I was able to close the credit card, but cannot remove my name and Social Security number from the account. My ex refuses to pay off the credit card nor does he make payments on the card as a judge ordered him to do in court six months ago. I have called the issuing bank, visited in person, spoken with everyone that I can, to no avail. The best they can do is flag the card for fraud. Since the credit card is not being paid off, it is damaging my credit score. Do you have any advice?

Answer: Report the crime to your local police and file an identity theft complaint with the Federal Trade Commission at IdentityTheft.gov. The police report means your ex could be arrested and prosecuted for his crime, but without it you may not be able to get your credit restored.

Submit copies of the police report and the FTC affidavit to the bank, along with a letter explaining the situation. Make it clear that you are the victim of identity theft, that the account is fraudulent and that the bank should remove your personal identifying information when reporting the account to the credit bureaus.

Next, dispute the account with each of the three major credit bureaus. You can get free access to your credit reports at AnnualCreditReport.com. (Type the full address into your browser to make sure you don’t land on a lookalike site.) While you’re at it, freeze your credit report at each bureau. There’s no better way to prevent criminals from opening new credit accounts in your name. Freezing your credit report is free, and you can temporarily remove the freeze without cost whenever you want to apply for credit.

Q&A: Closing a long-held credit card didn’t have much impact

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Dear Liz: I just read your column about cardholders being fearful of canceling a card. Here’s my story.

I made an online purchase with a credit card I’ve had since 1981. The purchase turned out to be a scam. I spent hours trying to resolve this. When I finally got a human, she was extremely hard to understand and was very condescending. She told me I should upgrade to another version of their card at a higher cost. I finally told her to cancel my card. Then she went to Page 2 of her script and offered me a $50 credit toward the purchase being disputed. After 20 minutes and my insistence that I no longer wanted their card, she finally canceled it. My credit score dropped 4 points. At first, I was concerned, but honestly, after 44 years with them and thousands of dollars in annual fees, the way I was treated made my decision easier.

Answer: Thanks for sharing your experience! The impact of closing the account might have been greater if it had been your highest-limit card, if you didn’t have several other open cards or if your credit scores weren’t high. But even a larger ding would be temporary as long as you continued to use your other accounts responsibly.

Q&A: Can I simplify my finances without hurting my credit score?

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Dear Liz: I’m 75 and getting forgetful and disorganized. My prior excellent credit rating has suffered due to late payments because of this. I’d like to simplify my finances by getting rid of extra credit cards, but this will negatively affect my rating even more. Why isn’t there some means for elders to simplify their finances without negative consequences? Some may ask why I care about my credit rating at my age. Well, if there was a major quake and I needed to borrow money to rebuild my condo, it would be important.

Answer: It’s not always possible or even desirable to maintain the highest possible credit scores. Sometimes, other factors must take precedence.

In your case, the most important consideration is making your finances more manageable. You’re correct that cancelling cards could further damage your credit scores, but the impact should be temporary as long as you responsibly handle the cards you keep.

Consider hanging on to one or two cards with the highest credit limits. Credit utilization, or the amount of your available credit that you’re using, is a big factor in credit scores so you’ll want to keep high credit limits if you can. If you’re closing other cards with the same issuer, ask that your credit limit from the closed cards be transferred to the card you’re keeping.

Also, set up automatic payments so that you never again miss a payment. You typically can set up automatic payments to cover the minimum balance, the statement balance or a fixed dollar amount. You can do this online or with a phone call to the issuer.

You should have a document known as a power of attorney that designates someone to handle your finances should you become incapacitated. You’d be smart to start involving that person now so that they’re familiar with what needs to be paid and when. This person could help make sure you’re keeping up with your financial tasks and could take over if you’re feeling overwhelmed.

If you don’t have such a person in your life, please investigate your options. An estate planning attorney or tax pro might have some recommendations, or you can check out the services of a daily money manager. You can learn more at the American Association of Daily Money Managers.