Some 80 million of us have Costco co-branded credit cards in our wallets. So what will happen with your credit and credit score as the warehouse club transitions to a new Visa card issued by Citibank?
First details of transition emerge
Last year, Costco dumped American Express and announced they’d be starting a new relationship with Citi. That means the new TrueEarnings Card will be issued Citibank, not American Express.
After months of speculation, we can finally share some good news: Existing cardholders won’t have to apply for the new card, and it probably won’t result in a separate entry on your credit reports, which means it shouldn’t result in a new hit to your credit. This info is courtesy of a recent filing Costco did with the SEC.
Additionally, since the transition from AmEx to Citi is expected to be somewhat seamless when it takes place later this year, that also means it won’t affect the average age of credit lines because you won’t be starting from scratch with a brand-new card.
That’s good news for credit score watchers. All those factors just mentioned can have a negative impact on your score. But now we’re not expecting they will.
So what will be different? Probably only the number on your card because Visa and AMEX have different numbering guidelines.
Of course, all these details are subject to change, so stay tuned for updates. The transition was supposed to have happened by April, but the latest reports now suggest it won’t take place until at least July.
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 may 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 we on Team Clark got directly from an American Express representative last year:
“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.”
In AmEx’s defense, we’re beginning to hear anecdotally that at least in some instances the new card is being approved for existing customers without a hard pull. So the jury is still on out on this one.
Some warnings about the transition
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.