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Letters from Credit Card Issuers
Question:
I received a notice from a card company stating they will change our terms and raise our rates unless we "opt out" of the new terms with higher rates. If I opt out they close my account but I don't have to pay it off right away and I continue making payments at my current rate and payment amount. This seems too easy...does this negatively affect my credit? Other than the fact that I have less available credit of course. It's not considered a settlement or anything weird like that?
Can you please let me know your thoughts?
Answer:
This type of “take it or leave it” letter has become very common from credit card issuers. I have even received such a letter from CITI for an account that I have had for 14 years with no late payments. To answer the question—it MAY affect credit negatively… There are a number of factors at work here:
1. Closing the account will shorten the length of credit history which accounts for 15% of credit scores. If the account has been open for a long time, I would not close it.
2. Closing the account will automatically increase debt utilization which accounts for 30% of credit scores. If he is carrying balances on other cards, then I would not close it.
3. By closing the account, it could have a multiplying effect on other credit cards. As other credit card issuers monitor his credit, they could see that the account has been closed. They may see this as a risk threat and decide to also close an account.
The best bet as to not have any negative impact on credit scores is to keep the card open and pay it off quickly. After a zero balance has been reached, only use the card for nominal purchases each month and continue to pay the balance off.
Kevin D. Weier
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