Credit card issuers don't automatically learn of your woes or shut your account
By Jeremy M. Simon
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Dear Credit Score Report,
My brother is serving an 18 month sentence. He has no credit card debt (paid before he started his sentence), and the cards aren't being used. Will inactivity affect his score? -- Concerned Sibling
Hey Concerned Sibling,
Even if your brother doesn't use his credit cards during the time he is behind bars, his credit score shouldn't be damaged solely by inactivity.
Inactivity alone doesn't hurt a cardholder's credit score in the short term, since existing credit history data will continue to help generate a credit score. Several banks confirmed that they continue to share existing account information with the credit bureaus -- Equifax, Experian and TransUnion -- as long as the accounts remain open. And as long as the credit bureaus have that information, they will, in turn, share it with credit scoring companies, such as FICO.
"A card that is open and carries a zero balance will just be reported as current for three years," says Experian spokeswoman Danica Ross. "As long as the card is open, lenders are obligated to report updates on the account." Since your brother's sentence is for 18 months, he will be out of jail well before his account information would stop being shared.
The real threat to your brother's credit score comes from the possibility of an account closure. His card accounts could be closed due to the banks' policies about imprisoned cardholders. Citi, for example, says it will close a credit card account once that issuer learns the cardholder is incarcerated. However, experts say information about an incarceration won't come from a credit report.
"I can tell you that credit reports do not include criminal arrest or incarceration records, so there would be no indication as to why there was no activity," says Experian's Ross.
Even so, you may want to call his bank and (anonymously) inquire about their policy regarding imprisoned cardholders, just in case.
Of course, you don't have to be in jail to have your credit card account closed. In the current economic environment, banks are closing accounts on all sorts of cardholders. As unemployment continues to rise, issuers have been canceling credit cards -- both used and unused -- in an effort to control the amount of credit available to borrowers. That's because consumers who eventually run into financial trouble could potentially default on their loans and cause banks to lose money. Whether or not the cardholder is behind bars, the decision to keep accounts open is the individual issuer's. "The closure of accounts is at the discretion of the lender," says Peter Garuccio, senior director of public relations with the American Bankers Association. "We don't force banks to lend money to anyone."
If one of your brother's accounts is closed or a credit line reduced, it could increase his utilization ratio. That's the comparison between existing debt and total credit access -- and a factor in determining credit scores.
Whether the banks close your brother's credit cards due to his incarceration or simply because they are limiting their risk levels, you can still help him generate a credit history while behind bars by adding your brother as an authorized account user on your credit card. Then continue to use your credit card and pay it off each month, adding positive payment information to your brother's credit history. "If attempting to maintain good credit scores while incarcerated, a family member could add the incarcerated individual as an authorized user to stimulate credit activity," says Bank of America spokeswoman Anne Pace.
If you don't let yourself worry -- and you add your brother as an authorized user on your card account -- you've done all you can. Meanwhile, the fact that your brother paid off his debt before going to prison bodes well for his continued responsible credit use after his release.
Good luck!
