Did Macy's ruin my credit when it closed, reopened my card account?
To Her Credit
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com
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Dear To Her Credit,
Last time I was at Macy's, I pulled out my Macy's card to
pay and mentioned to the clerk that I hadn't used the card in years. She ran it and
said I would have to reapply because the card had not been used in over a
certain amount of time. I don't recall being told about a cutoff.
I applied for a new card and paid for my item using the new
card account. When I received the new card in the mail a week or so later, the
accompanying letter said that "while processing my application, they
noticed I already had an account open." They took the liberty of closing
the old account and gave me a brand new account.
Now my card says I've only been a member since this year. I
guess now I have a closed account ding on my credit. Will this actually be a
ding on my credit? And can I call Macy's and get my old account back, because
it's better to have a long-standing account than a brand new one? I am beside
myself because I pay all my bills in full on time, and I am trying so hard to
build my credit. I thought I was only reapplying to reinstate my card, not to
receive a brand new one. -- Gwen
Things are not as bad as you think. The difference between
keeping your old Macy's card and starting over with a new one should be barely
noticeable in your case.
First, there is no "closed account ding" on your
credit score. Closing an account can affect your credit score in other ways,
but you are not penalized just because you closed an account or let it be
closed by not using it, in your case.
The confusion about a penalty for closing an account may
come from the fact that some accounts are closed when they become delinquent.
In that case, it's the late payments and other delinquencies that affect a
person's score, not the closing of the account. You shouldn't have to worry
about this problem.
There can also be a slight ding on a person's credit score
for applying for credit. You may see a slight dip of your score due to applying
for the new card. We're talking about five points or so, and only for a short period. Unless you're about to apply for a mortgage or other loan, and your credit score is borderline
acceptable, you'll never know the difference.
Closing your old Macy's account does not cause your good
credit history from the old card to go away. Whether an account is closed or
remains open, the account history remains in your credit bureau file for up to 10
years. You'll still get credit for your good payment history.
Another reason that credit experts caution against closing
credit card accounts is that it can change your credit utilization ratio. Your
credit utilization ratio is the amount you owe on credit card accounts divided
by your total available credit. The lower the credit utilization ratio, the
For example, say you have three credit card accounts, and
you owe a total of $10,000 on them. Your total available credit across all
three cards is $20,000. You have a credit utilization ratio of 50 percent
($10,000 divided by $20,000).
To take the example further, say you close one unused card,
leaving you with available credit of $15,000. You still owe a total of $10,000.
Now your credit utilization ratio is 67 percent ($10,000 divided by $15,000).
That's how closing an account is most likely to damage your credit score.
You don't have to worry about credit utilization scores if
you don't carry credit card balances, and if you don't have high balances at
any time during the month when the credit card company may report to the credit
bureaus. You're good. Plus, the fact that a new card was opened means that you
didn't entirely lose a credit line, so you should be fine.
Don't worry about your Macy's card. Your good payment
history on all your debts is far more important to your credit score than
whether your Macy's card is considered to be old or new. Keep taking good care
of your total financial picture, and for the most part, your credit will take
care of itself.
See related: New myth: Closing a credit card account always hurts your score, FICO's 5 factors: The components of a FICO credit score
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Published: August 6, 2014