Will Costco’s Switch From American Express To Visa Affect My Credit?

Image courtesy of Mike Mozart

In June, Costco will officially change its store-branded credit card from American Express to a Visa card issued by Citi. The wholesale club is promising a seamless transition, but some longtime Costco customers have concerns: Will my credit score or history be dinged? Can I opt-out? 

According to Costco, all current American Express-Costco card holders will automatically be transferred to the new Visa/Citibank card.

The new cards will arrive sometime in May or early June, and will be usable starting June 20.

Do I Have To Opt-In? Can I Opt-Out?

While account holders will soon receive updates about the status of their Costco cards and the transition, this information will not include the option of whether or not to get the new card.

That’s because it isn’t required, according to the Consumer Financial Protection Bureau.

The Truth In Lending Act addresses the issue of credit card account transfers between two different credit issuers. Under the Act and Regulation Z, a card issuer is barred from issuing a card that a consumer has not applied for — except in very specific situations, including those times when a credit issuer has purchased accounts from another issuer.

In this case, the new owner can issue an updated card as long as the use of the old card is cut off and the new cards can be issued in a one-for-one substitution.

However, a rep for Costco tells Consumerist that current cardholders can contact American Express to opt-out of getting a new Citi Visa account. But this comes with the caveat that, even if you tell AmEx you’re opting out, Costco might still send you a new card.

The Costco rep explains that because Citi is printing a “very large amount of cards, if a member opted out with American Express they would still receive a Citi card, however it would not be active and they would just discard the cards.”

Will The New Card Affect My Credit?

Usually, applying for a new line of credit can result in a “hard pull” on your credit report. But in this case, since no new credit is being issued, Citi says it will not pull a credit report as part of the account transfer process.

To confirm, Consumerist reached out to the three major credit bureaus — Equifax, TransUnion, and Experian — about how this transition would be reflected in customers’ reports. Neither Experian nor Equifax responded to our requests, while TransUnion referred us to the Consumer Data Industry Association, a trade group for credit reporting agencies.

Stuart Pratt, president and CEO of the CDIA, tells Consumerist that cardholders should see no adverse effect on their reports from the transition at Costco.

“Consumers shouldn’t worry about inquiries on their credit reports which result from the transition since these are considered ‘soft inquiries’ and they are not shared with subsequent lenders,” he explains.

A soft inquiry — such as account review inquiries made by your current lender relative to a current account relationship or the inquiry logged when you order your free report — are not reported to lenders or others requesting a consumer’s credit report.

What About My FICO Score?

Where cardholders might be affected is in their credit score — depending on how much, and what sorts of, available credit they currently have, and how long they have had the AmEx Costco card.

The exact math for calculating credit scores is secret, but FICO does acknowledge that it uses a mix of factors — including payment history, amount owed, and length of credit history — to come up with its final numbers.

While this transition from AmEx to Visa is structured in a way that you get a new card without pulling a credit report, the change will almost certainly reflect that your AmEx was closed and a new Citi/Visa account was opened.

“I don’t think that can be reported otherwise,” Pratt of the CDIA tells Consumerist.

If you’ve had that AmEx account for a long time and always paid on time, your credit score might be dinged because your “length of credit history” — itself a complicated, mysterious calculation — would be shortened.

We asked American Express if it would be possible for a current cardholder to maintain that “old” length of credit history by having their longstanding AmEx line of credit separated from the Costco account. Unfortunately, that doesn’t appear to be a possibility.

“If a Costco co-brand Card Member would like another Card from American Express, they should call us to discuss their needs,” a rep for the company says. “They can apply for a new American Express Card, and we would try to match their line, which is subject to our policy and regulatory requirements.”

So even if you did get the AmEx card, it would be a new line of credit. Additionally, applying for that AmEx would — just like applying for any other card — result in a hard pull on your credit report.

If you do opt-out of activating the Visa credit card but have a “thin” credit history — meaning you lack a variety of credit lines or additional available credit — that could also have an adverse effect on your score.

Please note that this is all hypothetical, as FICO not only does most of its calculating behind a shroud of mystery, it also didn’t exactly provide a clear answer to questions regarding this transition.

Ethan Dornhelm, senior principal scientist for FICO tells Consumerist that it refers questions about how specific reporting scenarios will be reflected in the credit file to the three credit reporting agencies. As you can see above, they weren’t very forthcoming.

Dornhelm did tell Consumerist that even if the credit bureaus provide information on how the change will be reflected, the result on a credit score still depends “on the information contained in the impacted accounts, as well as the make-up of the consumer’s credit file generally.”