Did Macy's ruin my credit when it closed, reopened my card account?


Dear To Her Credit,
Last time I was at Macy's, I pulled out my Macy's card to pay and mentioned to the clerk that I hadn't used the card in years. She ran it and said I would have to reapply because the card had not been used in over a certain amount of time. I don't recall being told about a cutoff.

I applied for a new card and paid for my item using the new card account. When I received the new card in the mail a week or so later, the accompanying letter said that "while processing my application, they noticed I already had an account open." They took the liberty of closing the old account and gave me a brand new account.

Now my card says I've only been a member since this year. I guess now I have a closed account ding on my credit. Will this actually be a ding on my credit? And can I call Macy's and get my old account back, because it's better to have a long-standing account than a brand new one? I am beside myself because I pay all my bills in full on time, and I am trying so hard to build my credit. I thought I was only reapplying to reinstate my card, not to receive a brand new one.  -- Gwen

Dear Gwen,
Things are not as bad as you think. The difference between keeping your old Macy's card and starting over with a new one should be barely noticeable in your case.

First, there is no "closed account ding" on your credit score. Closing an account can affect your credit score in other ways, but you are not penalized just because you closed an account or let it be closed by not using it, in your case.

The confusion about a penalty for closing an account may come from the fact that some accounts are closed when they become delinquent. In that case, it's the late payments and other delinquencies that affect a person's score, not the closing of the account. You shouldn't have to worry about this problem.

There can also be a slight ding on a person's credit score for applying for credit. You may see a slight dip of your score due to applying for the new card. We're talking about five points or so, and only for a short period. Unless you're about to apply for a mortgage or other loan, and your credit score is borderline acceptable, you'll never know the difference.

Closing your old Macy's account does not cause your good credit history from the old card to go away. Whether an account is closed or remains open, the account history remains in your credit bureau file for up to 10 years. You'll still get credit for your good payment history.

Another reason that credit experts caution against closing credit card accounts is that it can change your credit utilization ratio. Your credit utilization ratio is the amount you owe on credit card accounts divided by your total available credit. The lower the credit utilization ratio, the better.

For example, say you have three credit card accounts, and you owe a total of $10,000 on them. Your total available credit across all three cards is $20,000. You have a credit utilization ratio of 50 percent ($10,000 divided by $20,000).

To take the example further, say you close one unused card, leaving you with available credit of $15,000. You still owe a total of $10,000. Now your credit utilization ratio is 67 percent ($10,000 divided by $15,000). That's how closing an account is most likely to damage your credit score.

You don't have to worry about credit utilization scores if you don't carry credit card balances, and if you don't have high balances at any time during the month when the credit card company may report to the credit bureaus. You're good. Plus, the fact that a new card was opened means that you didn't entirely lose a credit line, so you should be fine.

Don't worry about your Macy's card. Your good payment history on all your debts is far more important to your credit score than whether your Macy's card is considered to be old or new. Keep taking good care of your total financial picture, and for the most part, your credit will take care of itself.

See related: New myth: Closing a credit card account always hurts your score, FICO's 5 factors: The components of a FICO credit score

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