Costco Credit Card Transition and your Credit Score

costcoamxSome 60 million of us are Costco members. So what will happen with your credit and credit score as the warehouse club transitions away from American Express?

How your credit could be hit twice

Earlier this year, Costco dumped American Express and announced they’d be starting a new relationship with Citibank. That means the new Costco reward credit card will be issued Citibank, not American Express. (There’s no word yet on exactly how rewarding the new reward card will be, but that’s a different story!)

The important thing for you to know is that this transition could lead to two hits against your credit. Citibank will run a hard inquiry on your credit if you want their new card, which makes sense since you’ll be a new customer. But as for American Express, they’ve made a decision that is loco: Amex will offer a new alternative to the Costco American Express, but they will do a hard inquiry on your credit if you want the new card — even though they already have a detailed credit payment history on you.

Why in the world would they do that? Here’s a statement I got directly from an American Express representative:

“A new credit card product has us entering into a new contract with the Card member with potentially different terms, conditions and benefits. The credit check helps ensure we’re providing the most appropriate product and services to our customers.”

OK, so that is a bunch of legalese. If you’re a longtime customer, you should expect better from American Express. But their statement shows clearly that they have decided your past payment record with them is not enough to grant you a new card.

It’s a lamebrain kind of decision that’s typical of big corporations. Just like dinosaurs, the bigger they get, the dumber they become because their brains are so small!

How bad will the damage be?

Let’s say you opt to get both the Citibank Costco card and the new American Express alternative to their soon-to-be-extinct Costco card. What kind of hit would that have on your credit?

myFICO reports that multiple credit applications in a 12-month period are a key leading indicator that somebody is in financial distress. That will lead to a lowering of your credit score.

It can be hard to quantify the exact number that your score will drop by. A single application in a 12-month window won’t matter much, especially if you have a long credit history and several different lines of credit. But if you have a shorter credit history or not much credit to your name to begin with, it’s going to be a bigger hit.

Here’s one last ironclad warning: If you are in the market for a mortgage or refinance, do not apply for any new credit card during the process of mortgage shopping. It could cost you many tens of thousands of dollars when your credit score goes down following the initial inquiry. That drop in score may put you in a different category, and then you’ll get a higher interest rate and have to pay more over the life of your loan.

As for American Express, I want to appeal to the company to rethink its decision. Some people who have had the Amex Costco card for 16 years and faithfully paid on time each month are having to apply again and have their credit dinged. Perhaps a better approach would be to grandfather in customers with a solid payment history of 10 years or more. Just a thought!

clarkhoward.com

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