In previous issues of The Score, we explored how credit card issuers use credit scores to target you with new card offers, and when deciding whether to accept your application for credit. This month, we’ll consider how credit card issuers use scores after your application has been approved, and you’ve activated and begun using the card. This is a practice referred to as either account maintenance or account management.
Credit card issuers, like all other lenders, have only one chance to set the initial terms of your account, which always happens when the account is opened. Your credit limit and interest rate are both determined based on the quality of your credit reports and credit scores at that time. (In some cases, particularly where very high credit limits are involved, card issuers may also consider income and other factors when setting terms.) But unlike other lenders, credit card issuers have the ability (and legal permission) to continually modify the terms of your account to stay in line with your current level of credit risk. This is where the process of account management comes into play.
Many credit card issuers will check your credit scores and reports on a quarterly basis. Some will even pull them monthly, as permitted under the Fair Credit Reporting Act. Your cardholder agreement, which you may or may not have read thoroughly before you signed it, likely also contains language giving the card issuer permission full access to your credit information.
If your credit scores and credit reports remain relatively unchanged, then your credit card issuer is likely to do nothing. If your credit score drops too much from one month to another, however, your credit card issuer can, with 45 days’ notice, reduce your credit limit or suspend your credit line. If a new delinquency lands on your credit report, and if the card issuer deems it severe enough, the issuer can even close your account.
If you pull a copy of your own credit reports, as you should yearly, for free, at AnnualCreditReport.com, you’ll likely see a list of the credit inquiries that have occurred over the prior two years. Credit inquiries are records of lenders or other authorized parties pulling your credit score. Every time your credit card issuer accesses your credit report or score for account management purposes, a new credit inquiry must be posted to your credit report. If they are pulling your report on a monthly basis you’ll see a long list, which might be a little disconcerting.
But there’s no need to worry. Account management inquiries have no impact on your credit scores. They are commonly referred to as “soft” inquiries, and soft inquiries are not seen or considered by scoring systems. They also are invisible to other lenders.