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Your Card Gets Canceled. What Happens to Your Score?

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Previously on NBC’s Today Show, I received a viewer question regarding her credit score. It was a bit of a tricky question, so I asked our resident credit expert Tom Quinn to weigh in.

First, here’s the question:

I have just one credit card, which I have had since approximately 1994. It currently carries no balance and I used it in order to accumulate airline miles (I have really taken advantage of the program). Nevertheless, I just received a letter from my credit card company that they are canceling my credit card as of September 15 because they will no longer offer the product. I am currently unemployed and am worried about two things: (1) how will the credit card cancellation impact my credit score, and (2) is there anything I can do to avoid any impact?

The answer:

Typically, closing a credit card account raises what’s known as your debt to credit utilization ratio.  That’s equal to the sum of all your credit card debt divided by the sum of all your credit card limits. A higher utilization ratio can bring down your score, but, as you say, you are in the rare case of having just this one card with no balance, which means that when this card shuts off you’ll go from having a zero percent utilization to basically a zero percent utilization. Your utilization goes unchanged. Again you have no outstanding debt on this card so your score shouldn’t be seriously hurt by this.

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“If she has truly been showing a “zero” balance—and thus 0% utilization—the impact on the score would be very minimal,” says Quinn.

Also, you may be worried that because the card is one you’ve had for a long time—17 years—the history will get wiped from your records and that could negatively impact your score. But just because you (or an issuer chooses to) close an account, the account doesn’t immediately fall off your credit report. And in some cases, if the account was a positive account, it could remain on your credit reports for 10 years or more. You will eventually lose that history when the account expires from your reports, but it won’t have a significant impact on your length of credit history immediately.

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Quinn also offered the following advice: “If the issuer is canceling the program, then your best bet is to ask if the lender will simply open a new card account under one of their other card offerings for you. In my experience, a card issuer would make this offer automatically for accounts in good standing because they want to keep the customer. They should want to do this if the consumer has been a good customer and represents lower risk.  That said, your unemployed status could impact your ability to get approved if the lender has that as a requirement independent of credit history/score.”

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Image: Louis Abate, via Flickr.com

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