When your wallet disappears, along with your credit cards, someone other than you gains fraudulent access to your spending privileges. Even before the feelings of panic begin to subside, swing into action to neutralize the loss, contacting credit card issuers to report the theft. In the midst of damage control, you worry about the theft's potential effects on your FICO credit score, but how you handle the process of reporting stolen cards can have scoring consequences as well.
Transferring Account History
When you report a stolen credit card to its issuer, the bank or finance company typically transfers your account history from the old card number to a new one. Your balances, credit limit, payment history and account opening date all move to the new number. This form of transfer poses no threat to your credit score because it doesn't change your available credit or eliminate a long, satisfactory record of handling your account, but it also carries forward any negatives, including late payments or overly high balances.
Closing an Account
Rather than reopen your account with a new number, you may be tempted simply to cancel the card altogether. Although paying down debt improves your credit score, reducing your available credit lowers it because it degrades the ratio between the amount you owe and the total you can borrow. When you close a credit account, your available credit drops by the total you can charge on that card. You may be better off keeping the account instead, especially if it represents years of good account management or offers you useful perks, such as cash-back bonuses or airline miles. Closing older accounts can have negative effects on the length of your credit history, which accounts for 15 percent of your score. If a thief got your wallet with multiple credit cards, closing all of them at once can multiply the negative effects on your credit history and score.
Upgrading a Card
If you rarely contact your credit card issuer, you may decide to take advantage of reporting a stolen card to inquire about available upgrades to your account. When you do, the card issuer places an inquiry with a credit reporting agency to evaluate your worthiness for a higher limit or lower interest rate. That hard inquiry can lower your score, at least temporarily. If the card issuer spontaneously offers you an upgrade, however, accepting the offer won't affect your rating because it's based on a soft inquiry that only you and the credit card company can see on your history. Before you accept one of these offers, verify that its terms make sense for you.
The Fair Credit Billing Act of 1974 caps the amount you can owe because of fraudulent charges on a stolen card at $50 per card. Most card issuers include zero-liability provisions in their account terms, wiping out that out-of-pocket risk. Report a stolen card the moment you experience the loss to remove bogus transactions and avoid charges associated with them. If you report your stolen card too late to avoid a fee, pay it promptly to avoid incurring a credit negative. Finally, to ease the stress of contacting card issuers in the event of a theft, keep a list, including their addresses and toll-free phone numbers from the backs of your cards, in a safe place so you don't need to round up this information from statements or websites in a blind panic.
- Bankrate: Will Replacement Card Hurt My Score?
- Experian: Credit Fraud Prevention Tips: Lost Wallet or Stolen Wallet -- A Serious Identity Theft Risk
- MyFICO: Credit Checks and Inquiries
- MyFICO: What's in My FICO Score?
- Board of Governors of the Federal Reserve System: Credit Cards -- Credit Protection Laws
- CreditCards.com: Replacing Lost Credit Cards Won't Impact Credit Score
- DisneyFamily.com: Top 10 Credit Report Myths
- Credit Karma: My Score Dropped, Why?
- Equifax: Checking Your Equifax Credit Report -- 8 Things to Look For
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