Reader Travis recently found out that one of his oldest cards had been canceled due to inactivity. This caused quite a dent in his FICO score and he’s about to go shopping for student loans— so he’s understandably freaking out.
I’m writing because I was recently notified that HSBC was closing one of my credit cards due to inactivity. I know that this practice is becoming more common in this economic environment, what I don’t know is what, if anything, I can do about it.
I called HSBC today and asked them to re-open the account and they said that they couldn’t though they would be happy to let me apply for another card. I checked my FICO score and its taken a hit because of this. It was one of my older cards, completely paid off, with a high limit so without it in my history I’m left with the few newer, low limit cards that I have. One thing I did notice on the reports that I got this afternoon was that its listed as “Account closed at consumers request”. Is it worth disputing that? Is it going to be worse if its changed to “closed by creditor” or does that part even play into the decision process.
I’m kinda’ freaking out over it because it took me down a whole ‘level’ on my FICO. I had credit trouble when I was in school but since I started working I haven’t had any problems, it just takes awhile to rebuild. Now I’m getting ready to go back to school, which I’ll have to use student loans to pay for a portion, and I just took a pretty big hit on my FICO. Do I have any recourse in this or am I SOL?
Well, it’s unfortunate that HSBC didn’t give you any warning before canceling the account, because there’s not a whole lot you can do once it’s canceled.
The best thing to do is to concentrate on improving your credit score. Let’s talk a little bit about why your FICO dropped the way it did.
- Your credit utilization probably dropped. Credit utilization is the amount of available credit that you are currently using. It counts for about 30% of your score. If most of your available credit was on this card because you’d paid it off — that could be a big hit.
- Your credit history is shorter. Since this was also one of your oldest cards, your credit history is now shorter than it used to be. Length of credit history counts for 15% of your score.
Sadly, unless you can convince HSBC to reopen the account (which is unlikely from what we understand), you can’t really do anything about the credit history hit. It’s best to concentrate your efforts on fixing your credit utilization.
There are three ways to do this: Ask HSBC to give you a new account with the same credit limit as the old one. This new account will cause your score to take a slight hit because it’s new — but that effect is only temporary.
Second, and most important, you can pay off more debt. The less debt you have the better your utilization will be.
Finally, you can contact your other creditors and ask for larger credit limits.
Readers, have you had this happen to you? How did you fix it? Do you have any suggestions for Travis?
Also, just as a footnote, there’s lots of good information about student loans out there, please be sure to educate yourself as much as possible about the different types of loans before you jump in headfirst.