HSBC Canceled My Card Due To Inactivity And Ruined My FICO Score!
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.
Travis says:
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.
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.
About Credit Scores [MyFICO]
Your Credit Card Account Could Be Closed Due to Inactivity [About]
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Comments:
I like to set up a monthly payment (like, Vonage, or a gym membership)on my two oldest, inactive cards, and then pay them off, plus whatever if i'm carrying a balance, each month. Usually all my random activity is on my rewards card. hopefully this will keep me safe!
My pre-emptive fix, since I started reading about the card cancellations, is to charge lunch on my "emergency" card twice a month or so. I never use it otherwise, just kept it for emergencies and to keep the credit line open on my credit score. Hadn't used it in three years, but now I'm trying to be diligent.
It's happened twice to me. Once with Discover and the other with a BofA Visa. With Discover they flat out told me I'm not a profitable customer for never having a balance.
I very rarely use credit and have lived my life with straight cash for everything except for online purchases. In the rare chance I do use a credit card for the extra protection, I always pay it off the moment I get home and can log into my CC account. Just did it this morning for gas less than 4 hours ago. It's already paid off.
@Eyebrows McGee (on Twitter: LPetelle): What's funny about my situation is that I have my cell phone bill sent to charge on my card, and it's such a hassle to change my billing information that I've just left it there. So despite Verizon being evil in its lack of prompt customer service support, their incompetency has saved me from having a long-standing card canceled because of inactivity.
"Since this was also one of your oldest cards, your credit history is now shorter than it used to be."
Could someone explain why that is? Why would the history of a card disappear just because an account is closed? I guess I don't understand why a closed account would be removed from your credit report when showing all accounts opened and closed would give a more accurate history of credit usage (e.g. someone who opens and closes accounts all the time versus someone who has one or two and had it closed on them, like in this case).
It's also pretty crappy of HSBC to list the OP as the reason for a cancel instead of them initiating it.
Wow, what a timely post for me. Just checked on my HSBC card that I haven't used in a while. Apparently this month they lowered my limit from $1500 to $300??? I haven't gotten a notice or anything, although I guess it could be in the mail.
I called a couple months ago to check that I'd activated a new (renewed after expiration date) card. For some odd reason they sent me THREE new cards in the mail shortly after that call. In the same envelope. No explanation. Same name/numbers on all cards new and old.
Been wanting to close this one for a long time since I've had a substantially better CC for a while and don't use them often anyway. Hubby didn't want me to in case it impacted my credit. I guess now would be a good time?
Funny note, this is an HSBC GM card. GM, sucking all around in every way.
Do the credit card companies think we the people are not going to push for even more laws against their abuses?
Have your gym membership debited the card, that always seems to reopen those "closed" accounts.
/snark
One thing the reader might be able to do is become an "authorized user" on someone else's credit card. This can help boost both your credit history and credit utilization ratio.
Pros:
-You get to piggyback off someone else's credit.
-If you piggyback off one of their older cards, you get their credit history.
-This counts toward your available credit, which makes your credit utilization ratio lower (assuming they don't carry a balance).
-The other person doesn't even have to give you a card, so they don't need to worry about you running up a big balance.
Cons:
-You're at the mercy of that person. If they pay late, it puts a late payment on your credit report too. If they carry a balance, it impacts your credit utilization
-You're essentially co-signing on their credit. Beware!
Account Closed at Consumer's request is the BEST way for an account to be closed. LOng term (with the exception of % usage part of the FICO score forumla), Consumers closing their own accounts will have a postive impact on their credit scores.
To the OP. How much hit to your FICO score are you claiming? You realize a significant purchase on another account could have caused the same effect?
@squinko: It's still there for a little while but will eventually be removed from your credit report. Also it's no longer an older open debt.
I think things stay on your credit report for 4-10 years depending on what they are (I believe shortselling your house and short-refi lasts for 4 but bankruptcy lasts for 10)
Credit card info might be even shorter than that for somethings.
I don't think it matters why your card was canceled, just that it was canceled.
The real issue is not HSBC but the whole credit system and how credit scores are calculated. You can be a multimillionaire and not need to work, and you will be denied credit if you don't have an established history.
"With Discover they flat out told me I'm not a profitable customer for never having a balance."
Did you explain to them that hardly anyone TAKES Discover?
I have four "cards", three credit cards, and one Debit card. One of my credit cards is for Wawa, which I use to get fuel and stuff at Wawa. Another is a ShopRite card, which I use for all my food purchases. The last is my BofA card, which I use for most other purchases/emergencies(high limit). It's easy to keep them open, as they are mostly for necessities, which I always need.
Can someone confirm the question about the flag "Account Closed at Consumer's Request"? No one lays out simple explanations and consequences for these flags. I had a card closed on me a few months ago, and that's how it was labeled. I was correcting something else on my credit report (huh? departmental credit card in South Korea?!), and attempted to correct that tag as well. They fixed the south korea thing but did not fix the '...closed by consumer' thing. There actually was no way to directly argue about it, so I had to write it in the comments. I don't know what more weight in determining the lack of change in the label.
@TheRedSeven: The authorised user credit score boost has been removed in the latest version of the FICO scores.
I didn't know that authorised users were liable to paying off the debt they incur. Are you talking about opening up a joint account?
@Caveat: Credit scores are only as valuable as the amount of faith people have in them.
This reminds me of a recent South Park episode with respect to "Space Cash."
For what it's worth, student loans aren't as sensitive to FICO scores, as most of the applicants have no credit report anyway. Subsudized loans are strictly need based. Unsubsudized loans do look at credit scores, but it's mainly a go/no go thing-rates don't vary as much as other loans.
Sounds like something you need here:
Are you suddenly a potential risk when yesterday you were Grade A Credit?
Consumers: We have a national news outlet seeking your assistance.
www.collectorsexposed.com
@Caveat:
That's not how credit works. Lenders use your FICO score as a guideline. They can ignore the score if they want to. A "multimillionaire" that provided prove of their income would have no trouble getting credit...poor FICO or not.
@Farleyboy007: I do this too, with my public radio membership and monthly donations to some local charities. It's a small enough amount per month ($10-$30) that I don't miss out on too many rewards on my newer, more lucrative cards.
@SJActress: I use my Discover card all the time because the rewards are killer.. the only place I have found that doesn't take Discover is Waffle House..
... hmm, I could really go for some Waffle House right about now.
How long was it since you've used the card? I want to know how long it takes before a card goes inactive
Do retail stores tend to do this too? I have an Express and Victoria's Secret cards that I haven't used since I opened them.
I don't worry much about my FICO score. Since paying off all my credit cards, I've been buying everything with CASH. I do not want to be a slave to the lender anymore. I feel much better and have less stress now that I don't have to pay my credit cards anymore.
@calquist: The rewards used to be killer. Now there's limits on them. Getting $20 back every third month isn't worth the mental energy required to make sure to use Discover instead of my Visa Check Card.
Geez, how big a "hit" on the FICO score are we talking about? Some people are such slaves to their scores that they just can't stand to see a one-point change. Fact-checking time.
@Skaperen: Doubt it. Their water carrier Delaware's Joe Biden isn't in congress anymore so they're probably fearful as hell of the pitchforks now.
**His credit history is not shorter** Closed account remain for 10 years..
Should have used the card.
@Coles_Law: Student Loans have a very, very dangerous darkside. They're nearly unregulated (unlike credit cards), and the lenders WANT you to go into default. Be careful. [www.studentloanjustice.org]
@squinko: If it was positive it'll remain for 10 years.
The OP should have used the card, simple as that really.
******########
To the Original Sender of the article, are you sure you checked a true FICO score and not some fake credit score?
You can only buy both FICOs at one place, www.myfico.com
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@James Izurieta: It is better for your credit if it is labeled as closed at consumer's request. If someone is looking at your credit report and sees a card closed by a company that can be a red flag that you did something that caused the company to close your card. Anytime you cancel a card you should request in writing that it be reported as closed at consumer's request.
If it works for you, great, but why not just wait until you get the bill in the mail, and just make one payment? Much simpler. Again, your call though.
Same thing happened to me with my old Wamu/Chase card. As soon as Chase picked up Wamu, out the door I went. Irritating, but not much I can do at this point. Thanks for the monthly billing option. I think I'll put one of the smaller utilities on my next 'air fare' emergency card.
Travis' utilization (the amount of credit he's utilizing vs. his total available credit) has likely gone UP, not "dropped." That will tank his score. Utilization dropping/going down HELPS your score.
His total history will not suffer (this card will remain on his reports for up to 10 years), but the "average age of open accounts" will, especially if he opens another account to replace this one.
Closed by consumer vs closed by credit grantor has absolutely NO effect on credit score (contrary to what another poster said). It only makes a difference on manual review, i.e. when a human being looks at your reports. Then you may have to explain what happened, so "closed by consumer" is always preferable. FICO doesn't know or care who closed the account.
If Travis disputes this account for any reason whatsoever, he runs the risk of having it deleted entirely. Never dispute a positive account unless you're prepared to lose it, because if the creditor does not respond to a dispute within 30 days, the credit bureau will delete the item. And you will never see it again.
I sympathize with the OP, because credit cards just make me tired lately. It's like the credit industry is doing their level best to exhaust everyone into submission.
Since Capital One jacked my interest rate up to WTF levels, I have paid off as much as possible and have less than $100 on it now. So now I'm afraid they'll think I don't have enough of a balance and cut me off or something.
I only have two credit cards, and the only other offers I get are for annual fee ones from HSBC, which does not pass my bullshit detector.
And I can't get a credit score online. I try. The free and paid places won't give me one because I'm allegedly entering incorrect info about a loan I took out years ago.
This should not be this hard, this calculus of "what helps what hurts" and "dings" and "soft pulls" and "hard pulls." Yet it is, because that benefits the credit card people. Of course.
This is not meant to be inflammatory in any way, I'm just wondering, but could someone explain to me why people have more than one credit card?
Last time I checked you don't have a constitutional right to have a credit card. Get over yourself.
@kwsventures: More broadly, we don't have a constitutional right to decent service. But this whole site is about NOT getting over it. Are you sure you want to be at this web site?
Next time, use your card. Even if you only use it once a month for a tank of gas, or something. You have to give your cards regular use.