Wednesday, Oct. 21
Posted 8 a.m. EST
Bankrate reporter Leslie McFadden contributed this entry.
Imagine trying to use your credit card only to find out the card has been canceled by the bank. Some unlucky consumers with gas cards issued by Citi are facing this exact predicament.
Citi told the Associated Press it "decided to close a limited number of oil partner co-branded MasterCard accounts." Impacted accounts include Shell, ExxonMobil, Citgo and Phillips 66-Conoco cards.
According to the article, Citi didn't provide a reason for the account closures.
Affected customers didn't exactly get much time to process the news. The AP reported that letters were mailed two days before the effective date of the closure. Nice.
Account closure isn't covered by the CARD Act under the 45-day advance notice requirement, which applies to rate and fee hikes. Your card can still get canceled with little warning.
What account closure does to your score: For those that are wondering, a cancelation initiated by the credit grantor isn't worse for your score than one requested by you. Scoring formulas only care that the account is closed.
The payment history from a closed account likely won't disappear right away. Closed accounts can stay on your credit report for up to 10 years if they are in good standing. Only when a closed account drops from your credit report could the length of your credit history shorten.
Once a closed account has a zero balance however, you lose the available credit associated with it. If you have high balances on other revolving accounts, the credit limit loss can cause you to look like you're using more of your overall available credit. Such an increase in revolving debt could cause your score to drop.
Until you can reduce balances on other accounts or acquire more available credit, an account closure could drive the score down temporarily.
If it happens you, you can could try calling your bank and asking to have the account reinstated. Failing that, work to reduce your other balances or replace the forfeited available credit.
Issuers get their licks in: Of course, Citi isn't the only major card issuer making unwanted changes to accounts before the rest of the CARD Act takes effect in February.
Last week, Wells Fargo declared it would raise interest rates on most of its accounts by 3 percentage points while Bank of America said it would "test" annual fees on some of its rewards cards, ranging from $29 to a painful $99.
I asked Bankrate readers to tell me whether they'd dump a card if the issuer installed an annual fee, and at what amount they'd draw the line. Most said they would cancel their account if any annual fee was imposed.
One reader said he would accept the fee due to his short credit history and limited options. "The problem is, as I'm only 24, if an annual credit card fee is imposed on either of my two credit cards would be a gun to my head," Brian B. of Indiana writes. He says he doesn't want to hurt his chances to qualify for a low mortgage rate next year.
He would definitely be in a tight spot if dealt annual fees on his accounts. A short credit history with few accounts is more prone to wild score swings than someone with a seasoned credit history. Account closures and new inquiries could hurt his score at a time when he needs every point.
Another reader wrote that she might accept a $29 fee, to avoid the cost to transfer her balance to another card. Balance transfer fees can run as high as 5 percent of the amount transferred, with no cap.
A $2,000 balance, for example, could cost as much as $100 to move. The $100 fee obviously tops a $99 annual fee, but the consumer would make up the difference after the first year assuming the new card stayed fee-free.
Consumers have not been afraid to take their business elsewhere. A recent Consumer Reports survey found that more than one third of credit cardholders have closed a credit card account since January 2008. About half of this group did so because of a change to their account, such as a reduced limit, raised rate or new fee.
Questions? Comments? E-mail plastic_rap@bankrate.com.
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