A lost or stolen credit card should not hurt your credit score as long as you take the proper steps once you realize your card is missing. Several common misconceptions exist about what happens to your credit report when you replace a lost or stolen card with a new one. The prevailing logic is the credit card company closes the old account and opens a new one when it issues the new card. Consumers worry about the effect this has on their credit since one of the factors used to determine credit score is the length of time accounts have been open. Keeping trade lines open and active for many years helps your credit score, while closing old accounts can lower it. Opening new credit accounts can also have a negative effect on your score.
Fortunately, most credit card companies do not close your account when you report your card as lost or stolen. They simply transfer your information, including your account open date and transaction history, to a new account number and effectively merge the two accounts into one.
Common Threats to Your Credit Report and Score
Additional threats to your credit score exist when your card is lost or stolen. The most obvious is the person who steals your card or finds your lost card may attempt to use it illegally. Because your name is on the account, you are responsible for any balance accumulated on the card. If another person racks up charges and you do not pay the balance, this negative information gets reported to the credit bureaus and lowers your score.
Your credit score may also suffer if your credit card is lost or stolen and you fail to transfer automatic monthly payments to your replacement card number. This happens frequently with gym memberships, utility bills and monthly subscription charges. Your credit card company declines these charges when they are made to the old card number. If you do not rectify the situation in a timely manner, these declined charges may be placed with a collection agency. Most collection agencies report to the credit bureaus; collection accounts are considered derogatory on a credit report, and they almost always lower your credit score.
Another scenario, albeit infrequent, is the credit card company declines to issue a new card when your existing card is lost or stolen. A lost or stolen card sometimes triggers an account review; the credit card company reviews your transaction history and entire credit report. If you have recent delinquent payments or your credit score has slipped since you opened the account, the credit card company might decide you no longer qualify for an account and close it. This not only creates an inconvenience, since you no longer have that particular card to use, but it hurts your credit by removing a seasoned account from your report.
As long as you are proactive, you can shield yourself from the harmful effects a lost or stolen credit card can have on your credit report and score. By taking the following steps after realizing your card is missing, you can protect your credit and get back to a normal life with minimal inconvenience.
Contact the Credit Card Company
Your credit card company should be the first call you make when you realize your card has been lost or stolen, even before contacting the police. The reason is the sooner you cancel the card, the less time the person who stole it has to rack up charges. While you are on the phone canceling your lost or stolen card, the representative from the credit card company can review with you the most recent transactions made on the card. For any transactions not made by you, he can help you dispute them; that way, you are not responsible for paying them, and they do not get reported to the credit bureaus.
You should also verify with the credit card company how it reports replacement cards to the credit bureaus. Most of the big companies, such as American Express, Bank of America, Capital One and Chase, have stated policies that they merge the new account with the old one for credit reporting purposes. That way, your credit report still reflects the original trade line, and it does not appear as if you closed an old account and opened a new one.
Review all Automatic Charges
Make a list of every automatic payment assigned to the card that was lost or stolen. The monthly ones are usually easy to remember, but do not leave out any charges made only quarterly, biannually or annually. These are the ones that frequently trip people up and cause issues with their credit reports. Make a special note of the date each payment is set to hit your card. Because it can take anywhere from a few days to a week or more to receive a replacement card, you might have to make payment arrangements with merchants set to charge your card before the new one arrives. For the others, contact the merchants the day you receive your new card. Explain the situation, and instruct them to delete the old card number from their records and set up future payments to deduct from your new card.
Monitor Your Credit Report
Not unlike medical conditions, early detection is key for handling threats to your credit report before they get out of control. Therefore, monitor your credit report closely. The law requires the credit bureaus to allow you to review your full credit report once per year for free. You should do this at a minimum; an even better idea is to monitor your credit report quarterly or monthly.
Keeping tabs on your credit report, especially after having a card lost or stolen, gives you peace of mind. It can also preempt the aforementioned situation where the credit card company closes your account after an account review. Often, a person who has this happen was never aware of the derogatory information in his credit report that triggered a red flag with the credit card company. If you always know ahead of time what your creditors see when they look at your report, you can avoid such unpleasant surprises.