There are plenty of things you can do proactively to keep your credit in good standing. You can check your credit reports every year. You can track your credit scores for free on Credit.com. You can make on-time payments and be sure not to apply too frequently for new credit.
But there are some things that you simply can’t control. What you can do in these situations, however, is know how to react accordingly to ensure your credit doesn’t take a hit when they happen.
To get a better feel for the aspects of your credit scores that you might not be able to control, we talked to Susan Henson, Experian’s vice president of consumer education.
“There’s so much that consumers can control, that’s why we encourage them to stay engaged with their credit all the time,” Henson said.
Here are those few things and some tips on how you can respond to keep your credit from being impacted.
1. Your Issuer Closes Your Account
It shouldn’t come as a major surprise if your issuer closes your account. The CARD Act of 2009 requires issuers to notify you of a rate increase — or any other significant change in terms to your credit card account, including closure — at least 45 days in advance of the effective date.
This notice must be clear and conspicuous, but there’s not much you can do to get your card reinstated once it’s closed. You can try calling the issuer and ask them to reconsider, but beyond that, you’ll need to act to make sure your credit scores aren’t impacted.
“When an issuer closes an account, it changes a consumer’s credit utilization,” Henson noted. In layman’s terms, the closure of this credit card means you have less available credit, so your debt-to-limit ratio will increase, and that can directly impact your credit score.
For example, if you have multiple credit cards with a total credit limit of $10,000 and you have $2,000 of outstanding balances, you are using 20% of your available credit. And that’s a good thing. You should keep your balances below 30% and, optimally, below 10% for the best credit scores. But now that one of your cards has closed, your combined credit limit has dropped to $6,000. That means that the $2,000 in outstanding balances now gives you a credit utilization of 33%. Your credit score could be impacted.
Fortunately, there are ways to ensure you don’t take a hit to your credit score. You can transfer any outstanding balances to a new card (you might even qualify for a zero- or low-introductory rate). You could also apply for a personal loan to pay off the balances if you aren’t capable right now (and might even see a credit score boost because your credit mix has changed).
Remember, though, you’re unlikely to be approved for a new card if you’ve already maxed out most of your existing lines of credit. Applying for a new credit card will also create a hard inquiry on your credit, which will ding your credit score slightly. (You can see how inquiries are affecting your credit scores for free on Credit.com.)
2. An Issuer Reduces Your Credit Limit
Just like when an issuer closes an account, reducing your credit limit will change your credit-to-utilization ratio. If it is a large enough change, it could hurt your credit scores.
Your first course of action is to call your creditor to see if they will reconsider the decision. If they decline, you can react as you would if your card was being closed and apply for a new one that offers a balance transfer.
If your limit is lowered below an existing balance, issuers are prohibited from charging an over-the-limit fee, or penalty rate, without giving 45 days’ notice before the limit is reduced. If that happens to you, you may want to contact an attorney or file a complaint with the Consumer Financial Protection Bureau.
3. Your Identity Is Stolen
Identity theft can be challenging and messy, and it can sometimes take years to repair the damage. Data breaches, security flaws and human errors expose consumers’ personal information all the time, and there’s often no way of knowing if yours has been compromised until it’s too late.
“Fortunately, it’s something that can be completely resolved,” Henson said. Experian, for example, has dedicated fraud resolution agents who can take quick action, putting fraud alerts on consumer files, she said, so it’s important to make a call to the credit reporting agencies as soon as you spot something suspect. If your identity is stolen, you also can freeze your credit to prevent someone from opening fraudulent accounts in your name (this often carries a fee, depending on where you live).
Beyond that, one of the best things you can do to protect yourself from the abuse of an identity thief is to regularly check your credit for signs of fraud. You can spot sudden, unexpected changes in your free credit report summary, which is updated every 14 days on Credit.com. As soon as you identify something suspicious, act quickly to minimize the damage. The sooner you can figure out what’s going on, the better, as identity theft can be quite destructive.
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