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,
My mother was an authorized user on my father’s credit card with a 13-year perfect history and a $19,000 limit. My father passed away and my mother had to open a new account. She does have a personal credit history with less than 10 percent balance on several cards with a greater than five-year length and had an 820 credit score prior to this card having to be canceled. How much should she expect her credit score to drop considering there are three significant auto loans and now her credit/debt ratio will significantly and negatively change. – Kristie
The credit effects of becoming a widow or widower will depend largely on the ownership of the couple’s accounts, and the survivor’s individual credit profile.
For any cards held jointly by your parents, your father’s name would have simply been removed from the card, leaving your mother as the sole account holder. Had she and your father jointly held this particular card with the $19,000 limit, instead of closing it, your mother could have simply continued as an individual cardholder with her score continuing to benefit from that high limit and established history.
However, many card companies no longer offer jointly held cards, so that may not have been an option for them at the time it was opened.
Kudos to your mother for having had the foresight to establish credit of her own more than five years ago. Let me put your mind at ease: By carrying cards with low credit utilization (balance/limit percentage) of below 10 percent, and by having auto loans in her own name, your mother’s credit score should easily weather the loss of your father’s card and the opening of her new card.
Let’s take a closer look at your mother’s favorable situation, then back out and see how other widows and widowers might learn from it.
There are three credit scoring factors that are affected in your situation.
1. Credit utilization
Replacing that $19,000 of available credit on your father’s now-closed card with what is likely to be a somewhat lower limit on your mother’s new card could have presented a problem for your mother’s score had her balances been higher. Fortunately, her already-low balance-to-limit ratio of less than 10 percent should see her losing no more than a few points from any slightly higher utilization.
2. Credit age
Regardless of whether your father’s card was older or younger than your mother’s credit history, its closing will have no effect on your mother’s account age for as long as it remains on your mother’s credit report. And though the addition of her new card could hurt a bit initially within this minor scoring category, the monthly aging of her other accounts should make any credit age consequences a nonissue.
3. New accounts
Any time a new account and the inquiry associated with it are added to a credit report, you can expect the loss of a few points. But just as any minimal utilization increase or credit age lowering leave little to worry about when your score is in the 820 stratosphere, consider any unfavorable scoring impact from this new account and inquiry a mere drop in the credit scoring bucket.
Less pretty alternatives
So your mother is in good shape. But others might not be. If she had not established credit in her own name, the scoring outcome might not have been so favorable once one card was closed and another opened.
Let’s consider how another widow or widower would have fared if they had been only an authorized user, with no accounts in their own name. That person might have suddenly had:
No credit score. You can’t have a credit score unless you meet the minimum standards for having one. The FICO scoring formula requires at least one recently reported account, opened more than six months ago. When someone who has no credit in their own name gets dropped as an authorized user due to the death of the primary account holder, their credit report may no longer meet the minimum standards.
A low credit score. What about a widow or widower who loses authorized user status, but manages to open up one or two new cards? Chances are, they would be low-limit cards, and a once-high credit score would fall quickly following the closing of the deceased spouse’s card.
High score advantage
Your mother’s situation clearly illustrates how a major benefit of having credit in your own name, and keeping a high score. A robust, well-maintained credit score can experience a little adversity, such as opening and closing accounts, without any meaningful damage. So, while no one can accurately predict how much any score will drop, it’s safe to say that your mother’s score will withstand these changes very nicely. That is, as long as she continues to pay on time, keeps those balances low and only opens additional new accounts when necessary.
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