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You’ve no doubt heard that closing a credit card can hurt your credit scores. But sometimes it can’t be avoided. If you were one of those affected by the recent data breaches, for example, your card issuer may have closed your account and issued you a new card under a different account number.

Members of the Consumer Bankers Association (CBA) and the Credit Union National Association (CUNA), say they have replaced 21.8 million of the 40 million compromised cards to date. Presumably, those new cards will be reported to the credit reporting agencies.

Does this mean your credit scores may take a hit just because you were a data breach victim?

While it’s certainly possible, it’s not likely, due to the way replacement cards are reported. But there is a hidden danger there that can hurt your scores even more than a new account ever would.

“Data furnishers have two options they can use when reporting ‘lost/stolen’ accounts,” explains Susan Henson, vice president, public relations for Experian. “The method the data furnisher chooses typically depends on their own internal systems. Both methods are considered standard reporting processes under the Metro 2 Reporting guidelines.” (The Metro 2 format refers to the file format for reporting consumer credit information.)

She goes on to list these two options:

1. The data furnisher would just ‘change’ the on-file tradeline account number to the ‘new’ issued account number.  This would leave only one tradeline in the file; the original date open and all payment history would remain.

2. The data furnisher would report the ‘original’ account to show as Lost/Stolen. This would close out the account number and the balance would be zero. The payment history associated to the trade would ‘remain’ with the trade- so that is it not duplicated over to a new account. The data furnisher would report the ‘new’ account using the same date open as the original, the balance amount outstanding from the original account would be moved to the new account. Payment history begins with month one.  Since the original account remains in the file, they would not duplicate the payment history to the new account.

The first option — maintaining the current tradeline but replacing the account number — is “recommended per the Metro 2 reporting guidelines,” says Dave Blumberg, public relations manager for TransUnion.

How Issuers Report Replacement Cards

We asked the major card issuers how they report replacement cards to credit reporting agencies:

  • American Express:  The new card has the same open date and “Member Since” year as the previous card. The balance on the old account number is transferred to the new account number. All payment history transfers over.
  • Bank of America:  All transactions and account history are transferred to the new account number when there is a card replacement or renewal.
  • Capital One:  The new account number with all the original account data (original open date, etc.) is reported along with a notification to the bureaus that the new account number is replacing the old.  The two tradelines can then be ‘merged’ into one, so that all the applicable payment history, balance, etc. is now under the new account number.
  • Chase: The original tradeline does not change.  The history on the account remains, just the account number field is updated with the new account number. There is no “new” tradeline in this scenario.

The Real Risk to Your Credit

There is a risk of damage to your credit reports when you close an account and open a new one, however. It stems from payments you have set up to be automatically charged to your card, such as a gym membership or utility bill. If you don’t update your new number with the provider, those charges will be declined and you could risk the account winding up in collection. A collection account will no doubt cause your credit scores to drop significantly.

Another possibility: Your card issuer may review your account and credit history and decide not to renew your account, says credit scoring expert Barry Paperno.

Trust But Verify

It is a good idea to review your free credit reports after you have been the victim of a data breach. You can see for yourself how your new account is reported, and check to make sure there is no other suspicious activity that could indicate identity theft. Monitoring your credit scores each month using a free service like Credit.com’s Credit Report Card is also a helpful way to keep tabs on changes in your score. If your scores change significantly from month to month, you’ll want to dig deeper to find out exactly what is going on.

More on Credit Reports and Credit Scores:

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