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Credit Card Changes, Opting-Out, and Credit Rating

If I opt-out of the changes to the terms and conditions of my credit card will it affect my credit?

If I opt-out of the changes to the terms and conditions of my credit card will it affect my credit?

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When a bank proposes changes to the terms and conditions of a credit card account they give the consumer the choice to "opt-out." If you decline the changes to the terms and conditions -- opt-out -- this will leave you with the original terms and conditions of the credit card, but you will be required to close the account.

Unfortunately, you provided no information about your situation that would allow me to determine whether you will see an impact on your credit score. I will provide you with five scenarios to illustrate the possible impacts on your credit score.

Low balance, low available credit, new account

Let us start with an easy scenario first. Let us say the account has a zero balance, a relatively low available credit balance, and is among your newer accounts. In this situation, there will be virtually no negative impact on your credit score for reasons we discuss below.

Low balance, low available credit, old account

Now let us change the facts slightly. Let us say that this account is your oldest, has a zero balance, and a small available credit balance. The length of a positive credit history counts for about 15% of your credit score. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently responsible about making your payments. Generally speaking, if you have accounts with long history (five or more years) and no missed payments, you should keep these open and with a zero balance.

Low balance, high available credit, new account

Now let us change the facts slightly again. Let us say that this account has a zero balance, is not your oldest, and has a relatively large available credit balance. Let us add one fact here -- your other accounts have a relatively low available credit balances. Total debt and total available credit counts for about 30% of your credit score. A credit score considers how much debt you have compared to the total available credit on your accounts. If all of your accounts are maxed out, you will be considered a poor credit risk, because it appears that you are struggling to pay off the debt you have already incurred. If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score.

The score calculation also looks at these two factors independently. Having too much available credit, whether you have used it or not, could hurt your credit score, as statistical studies have shown that people with excessive amounts of available credit are a higher credit risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so the best tip is to use credit conservatively and to keep your debt-to-credit limit ratio low.

If closing a high available credit balance account alters your debt-to-credit limit ratio significantly then you can see a decrease in your credit score.

High-balance account

The bank will expect you to pay the balance immediately if you choose to opt-out and the bank closes the account. If your cannot pay-off the balance then the delinquency will harm your payment history. Payment history counts for approximately 35% of your score, and is the most heavily weighted factor used in calculating your credit score. Consistently paying your bills on time has a positive influence on your score, while late or missed payments will hurt you in this area. If you have delinquent payments, the older the delinquency the less the negative impact on your score will be. Conversely, recent delinquent payments are very harmful to your credit score.

Unique account

The mix of types of credit counts for approximately 10% of a credit score. Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact. If you have one or two other credit accounts, then closing this account will harm your credit score. Conversely, if you have a diverse array of credit accounts closing this account will not have a large impact, all other things being equal.

As you can see, the answer to the question "How much will closing one credit card account harm my credit score?" varies with each person and their unique circumstances and history. To learn more about how credit scores work I encourage you to visit FICO Score Calculation.

I hope this information helps you Find. Learn & Save.

Best,

Bill

www.bills.com/

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