Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Opening Credits,” a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
Dear Opening Credits,
I had a one credit card, which is a secured type, and I opened at a $300 limit with Washington Mutual in November 2007. Now WaMu has merged with Chase, and they have to close that credit card because Chase doesn’t have a secured credit card. It was my one and only credit card which built my credit history. Now, I don’t have any credit cards, and I am worried that account has been closed, and I don’t know what would be the impact of that on my credit history. And also I have worked hard to build that history, and I would like to still keep that. I don’t know what to do. It’s not easy to get a credit card. — Husrev
It sounds like you had a good thing going with Washington Mutual, and then when Chase stepped in and took over — poof! — it all vanished.
Or did it?
All your hard work was not for naught, Husrev. Clearly you had the account and used it, which means that WaMu regularly reported all of your charging and payment activity to the three major credit bureaus. Consequently, you have a traceable credit history that is yours to keep. As per the Fair Credit Reporting Act, positive credit information may be reported forever. Most negative information, on the other hand, will drop off the reports after seven years has lapsed.
Even better, because you opened the account way back in 2007 (ancient history!), you had at least a year before it was closed to create a great credit history. Assuming you always paid on time and kept your balances low, now may be the perfect time to spread your wings and fly with a brand new credit card that doesn’t require the training wheels of a security deposit. Though the lending market has tightened and requirements are a bit tougher today than in previous years, there are still plenty of credit card companies, banks and credit unions eager to extend credit to a person who has proven to be a responsible borrower. Oh, and who also has a job and perhaps some assets …
Now, in the event that you have none of the above, and financial institutions are reluctant to give you an individual unsecured line of credit, you may consider a co-signed account. With it, someone who does have an excellent credit history steps in to help you get an account by letting you benefit from his or her good name. However, if you overcharge or fail to pay, you’ll damage the other person’s credit as well as your own. For this reason, a co-signed account can wreak havoc on a relationship.
A better option, then, may be to simply start over with another secured credit card. While Chase isn’t offering such collateralized products right now, many other credit issuers are. As with unsecured credit cards, you will find what you need by getting online and reviewing available credit offers. After that, apply for one or two of the best cards that fit your needs and circumstances.
I sense a lot of worry about how the closed account has affected your credit report, but breathe easy. The impact, if any, is most likely minimal. You won’t be penalized for the account’s closure, and only 15 percent of your FICO score is comprised of length of credit history. During the time you had the card, the way you borrowed and repaid carried considerably more weight, as the combined total of those two categories is 65 percent of your score. Inquiries and types of account are 10 percent each, and so are relatively minor factors. Still, they all add up, so once you do have a new account, assume a comprehensive approach: Obtain a mix of several credit types (a credit card, charge card, and maybe a loan), repay all balances on time and in full and keep your applications to a minimum. Over time, your FICO score will zoom and the angels will sing.
Back to your old account — do you still have any of that security deposit left? I hope so. Gail Hurdis, communication and public affairs representative for Chase card services, said they notified customers whose secured accounts were closed and issued refunds for anything in the savings accounts. They also would have credited any portion of the annual fee that was unused for the account year. Therefore, if you’ve got the cash, I strongly suggest that you immediately plunk it into a savings account. This will act as a personal security deposit — something that everyone, cardholder or not, should have. After all, unexpected emergencies happen, and when they do, you’ll be grateful for having tucked away that money.
Finally, Husrev, keep in mind the adage “the only thing constant is change.” Indeed, the entire financial world is in a perpetual state of flux. Bank mergers and shake-ups are commonplace, so stay tuned to market adjustments, adopt an attitude of resilience and always plan ahead.
See related:Credit Card Help: 10 things you must know about credit reports and scores, Credit Card Help: 6 things to consider when choosing a credit card, Credit Card Help: 9 things you must know about prepaid cards, How to cancel a credit card
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