Do Lost or Stolen Credit Cards Hurt Your Credit Score?
Laura answers questions about how replacements for lost or stolen credit cards affect your credit. Find out how to protect your credit and the best places to get your reports and credit scores for free.
Laura Adams, MBA
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Do Lost or Stolen Credit Cards Hurt Your Credit Score?
A Money Girl Podcast listener named Karen says, “Your recent show about credit card pitfalls reminded me of a recent experience. I lost my card and had it reissued—but the new card has a different number.
Will the cancellation of the old card hurt my credit score?”
You’re probably like Karen and know that closing a credit card can hurt your credit scores. But what if you can’t avoid it because your card was lost, stolen, or the number got compromised in a data breach that wasn’t your fault?
In this post, I’ll explain how replacement cards are handled and answer an additional listener question for more clarification. You’ll find out if your credit scores could take a hit when you have lost or stolen credit cards.
Free Resource: Credit Score Survival Kit—a multimedia tutorial with smart strategies to build and maintain excellent credit for life!
How to Handle Lost or Stolen Credit Cards
I’m no stranger to having credit cards hacked. I review my transactions frequently and a few months ago I saw an $800 charge for Disneyland tickets that I definitely didn’t buy.
I’ve also caught thieves sending test transactions for one or more small amounts that I didn’t charge. Once test charges clear, thieves know that your card number is valid and they move quickly to make even bigger charges before you shut down the card.
While losing your card or having the number stolen is a huge nuisance, fortunately, the potential liability for credit card fraud is just $50. However, if a criminal gets hold of your debit or ATM card there’s much more at stake.
To learn more about the differences between using debit and credit cards, be sure to read or listen to 6 Risky Situations When You Should Avoid Using a Debit Card.
Once you realize that your card is missing or notice unauthorized charges, report it through your online account or call the card issuer right away. You’ll need to file a formal fraud claim to help the issuer understand what happened and make sure they can credit your account for any bogus charges.
Those Disneyland tickets that I mentioned were flagged as fraud and credited back to my account in just a couple of days. Once a thief uses your card number, the credit card company cancels it right away so it can’t be used fraudently again. Then they reissue you a card with a new number.
Free Resource: Join the Dominate Your Dollars Facebook Group—Laura’s private group to help you tackle debt, build credit, and reach big financial goals!
Does a Lost or Stolen Credit Card Hurt Your Credit Score?
How the card issuer reports your lost or stolen card to the nationwide credit bureaus (Experian, Equifax, and TransUnion) determines how it will appear on your credit report. Each card company handles replacement cards a little differently, but has two basic options:
- Change your account to a new number so the original tradeline stays in your credit report. This preserves the open date of the account and all your payment history under one account.
- Cancel your account and open a new a new one so your original account shows “lost or stolen” with a zero balance, but retains all your payment history. Then a new account is created using the same open date and outstanding balance as your original account. You end up with two tradelines in your credit report, one for the old card that’s closed, and one for the new card that’s open with new payment history beginning on month one.
The good news is that as long as the new account keeps the original account’s open date and credit limit, the replacement should be a wash that doesn’t hurt your credit.
The good news is that as long as the new account keeps the original account’s open date and credit limit, the replacement should be a wash that doesn’t hurt your credit.
An account’s open date is important because the longer you’ve had credit in your name, the better. While closed accounts do remain in your credit files for up to ten years, they eventually fall off and cause your average account age to drop.
Even more important for maintaining good credit is your credit utilization ratio, which is calculated by dividing your outstanding balance by your total available credit.
See Also: Best Tips to Improve Your Credit Score
Credit Utilization Ratio Example
For example, let’s say you have two credit cards that each have $5,000 credit limits and you owe $2,500 on one of them. Your credit utilization is calculated by dividing your outstanding balance by your total credit limit, or $2,500 divided by $10,000, which equals 25%.
If you decided to close the second card because you paid off the balance, your credit utilization would skyrocket. It would be $2,500 divided by $5,000, or 50%. To maintain good credit, you should never use more than 20% to 25% of your available credit.
To learn more about how to build excellent credit, download my free Credit Score Suvival Kit. It’s a multimedia tutorial with smart, legitimate strategies to build credit from scratch or rebuild after hitting a financial rough patch.
I received a more specific question about credit utilization from Peter, who says:
“My wife and I have several credit cards but only use the one with the best rewards for most of our charges. The utilization on that card can go as high as 75%, while the rest of our cards have no utilization. Does having a high utilization rate on just one card negatively affect my credit, or is it calculated on the combined information on all of your cards?”
Your credit utilization is calculated for both your individual cards and for all of your cards. So the answer is that having a high utilization rate on just one card can hurt your credit, even if you pay it off in full each month.
However, one strategy to avoid having a high balance reported is to pay off some or all of it before the data goes to the credit bureaus. Check your credit report to find out when the information is typically received. It’s typically not the same date as your statement due date.
For instance, if the last reporting date on your favorite credit card was November 8, the next one is likely to be December 8. So paying your bill before then gives you the chance to cut your utilization.
If staying ahead of the reporting date is too difficult to remember each month and you’d rather just pay your credit card bill on the statement due date, then spread out your charges on multiple cards so the utilization on each one never exceeds 20% to 25%.
Another strategy to keep the balance on your favorite credit card from getting too high is to make multiple payments throughout the month, such as every Friday or on the first and the 15th of the month.
How to Check Your Credit Reports
The real risk to your credit score with a reissued credit card is what happens to any automatic payments, such as toll passes, utilities, or gym memberships.
It’s easy to check your credit card account information by reviewing your credit reports at free sites like:
You’ll be able to see for yourself how your accounts are reported and make sure there’s no suspicious activity (such as a new account that you don’t recognize), which could indicate identity theft. This is especially important if your information was compromised in a data breach.
To sum up, there’s typically no risk to your credit when you have a credit card reissued. However, the real risk is having your identity stolen by a cyber criminal who may have compromised your data in the first place.
Another secondary threat to your credit score with a reissued credit card is what happens to any automatic payments, such as toll passes, utilities, or gym memberships. Whenever you receive a replacement card with a new number, review several months of your account activity to remind yourself about merchants that are using the old number.
If you forget to update them, charges could be declined and your account may end up in collections.
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Credit Card Thief image courtesy of Shutterstock.
About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.