Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes “Speaking of Credit,” a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
Dear Speaking of Credit,
Hi! I have an awful personal training “contract” with a well-known fitness gym. They haven’t kept any of their promises and all of the trainers are nowhere near qualified. I’m totally done with it. I know it’s not a real contract as far as credit goes, and they can’t report me to collections.
I recently opened two new credit cards to strengthen my credit, which is already pretty good, around 730. I no longer need to use the credit card that I have this account tied to.
If Bank of America will continue to allow the transaction through even if I change the card, my question is, should I close the account or will it hurt my credit since it happens to be my longest-standing card? It’s currently empty, and I have had it for about 11 years, and the other two only this month.
I read somewhere that when you close accounts they are still on your history, and you will only notice a difference if there is a significant difference in the amount of time that your cards have been opened. It may make your credit history look half as long.
This doesn’t really make sense to me. Is this true? Do they divide your time after your close an account? Will it significantly affect my credit if I close this one? Thank you so much for your advice! – Amanda
When a business fails to deliver on its promises or simply doesn’t satisfy you, it can be easy to make a well-intentioned but foolish move that can demolish a good credit score. Considering your excellent 730 score, it’s good that you’re asking these questions.
How collections are reported to credit bureaus
Let’s start by addressing your comment that the contract you signed with the fitness gym is “not a real contract as far as credit goes, and they can’t report me to collections.”
If by not being a “real contract as far as credit goes,” you mean this personal training contract is not an account that shows up on your credit report, you’re right. It’s not. Yet.
Whether reported to the bureaus or not, though, your contract with the gym obliges both parties to deliver on the promises in the agreement.
- Despite your claim that their personal trainers lack the necessary qualifications, you should have already attempted to cancel the contract according to the agreed-upon terms for ending the relationship.
- For example, if submitting a cancellation form and waiting for period of time is required, we’ll assume you have attempted to do so, but were somehow unsuccessful.
Now to the second half of that comment – “they can’t report me to collections.” Are you thinking they can’t assign an unpaid debt to a collection agency because you haven’t given them your Social Security number?
If so, you might want to think again. Contrary to popular opinion, all it takes to assign a debt to a collection agency is a name, address and a dollar amount.
That being the case, and despite the absence of this account on your credit report, your credit could be severely damaged for many years if the debt resulting from this contract is assigned to a collection agency, where it can then be reported to the credit bureaus.
Such a collection could lower that 730 score by more than 100 points the moment it lands on your credit report.
Dissatisfied with a service? Try a chargeback
Let me introduce to you one of the best friends a credit card holder can have when dissatisfied with a purchase: a chargeback.
As a credit card holder, you have the option to file a complaint with the issuer of the card used when a merchant hasn’t delivered on a promise or made good on a defective product.
Upon receiving the complaint, the card company:
- Provides a credit to the cardholder’s account for the disputed amount.
- Issues a debit – a chargeback – to the creditor, along with the complaint and an opportunity to reply.
- Stops any negative credit bureau reporting of the disputed balance while the card issuer’s final decision is pending.
Ultimately, after hearing from both sides, the card company determines which party has acted more responsibly.
If the consumer prevails, the disputed charge stays off of the account. Otherwise, that amount will once again be credited to the merchant’s account and charged to the consumer’s.
Small claims court: an available option
Fortunately for you, if the card issuer’s chargeback decision goes against you, there is another option.
For a small filing fee and with no need for a lawyer, you can take the company to small claims court (a December 2017 CreditCards.com survey of mandatory arbitration clauses showed that a vast majority of card issuers make an exception to arbitration for actions brought in small claims court. Further, Bank of America is one of the banks that does not include mandatory arbitration clauses in its credit card agreements.)
If you can persuade the small claims court judge that you have been wronged, a civil judgment can be levied against the gym, requiring that it refund your money, stop all any collections activity and even order a derogatory collection removed from your credit report, if necessary.
On the other hand, if you fail to convince the judge, the outcome may not be so good. A judgment in favor of the gym can then be filed and added to your credit report, where it could do additional lasting damage to your credit score.
New-card scoring impacts
Back to your questions about your cards. Though you haven’t specifically referenced the “average account age” scoring calculations that measure your length of credit history, these are the factors involved when new accounts “make your credit history look half as long.”
And yes, you could have essentially shortened your length of credit history by adding those two new cards to a credit report consisting solely of an 11-year-old Bank of America credit card. In such an example, your average account age calculations might look something like this:
- Before adding new accounts, the average age is 132 months [(11 years x 12 months) / 1 account].
- After adding two new accounts, that average age drops to 47 months [(132 months +1 month +1 month) / 3 accounts]
Closing your oldest card
One of your stated concerns we can dispense with is that of the gym being able to continue charging your card after it’s been closed. Since this would be a card closed by the consumer herself, they can’t.
Video: How your credit mix and new credit affect your score
Yet anticipating the possible scoring effects from closing that 11-year-old card may not be as straightforward as the new-card impacts just discussed. Here there is more of a short-term versus long-term influence on your score to consider.
In the short run, you can feel some comfort knowing that closing a card won’t change your length of credit history, as any account continues to be factored into your score for as long as it remains on your credit report.
It’s the long run where you have reason for concern. Closing any card can lead to its removal from your credit report after about 10 years. When that time comes, you could see your score drop with the loss of your oldest card’s credit history.
Ending your relationship with the gym: plan of attack
Once again, rather than simply closing the card on file at the gym, these are the actions you should take:
- Be sure you have canceled this contract in writing and according to the terms of the agreement.
- If you continue to feel you’ve been charged unfairly and the gym continues to be uncooperative, initiate a chargeback with the card issuer.
- If that doesn’t work, consider filing a small claims suit.
Equipped with these tools for dealing with a difficult merchant while protecting your good score, you should be able to resolve this dispute with a minimum of difficulty. Good luck!
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