6 Surprising Reasons Why a Credit Card Issuer Will Close Your Account

Not many people are aware that a credit card company can cancel a card issued by it at any time, without giving any prior warning to the consumer. This can be very inconvenient, especially if you find out just when you're trying to make a payment with the card. Here are a few reasons why an issuer may decide to cancel your credit card.

Your Account Is Inactive

If you haven't used your account in a long period of time, the company may shut it down because of inactivity, even if it has a zero balance. Card companies make money in the form of swipe fees or interchange fees when a cardholder uses a card. Thus if the account is unused, it doesn't make sense for the issuer to keep it open, especially since they aren't legally allowed to charge any inactivity fee to compensate for lack of revenue.

You're in Default

very cardholder must at least pay the minimum amount due every month, even if he or she doesn't pay off the entire balance. If the consumer hasn't made a payment for 180 days, the issuer will probably close the account.

Your Credit Score Declined

Due to the Credit CARD Act of 2009, issuers can no longer raise your interest rate if you make a late payment on a card issued by another company. However, they can – and very often do – close the account that you have with them if your credit score has plummeted.

You Rejected New Terms and Conditions

Issuers are required to give consumers 45-days' advance notice before they increase their interest rate or annual fee. If you reject the rate change and pay off your balance within that period, the issuer can cancel your credit card.

The Issuer Is Retiring the Type of Card

Card companies review their portfolios at regular intervals and remove credit card products that no longer make sense. In such cases, they usually give advance notice to consumers and inform them regarding their options. More than likely, if a company retires one card product, they will shift you into another type of card offered by the same issuer. There's also the case where the bank sells a portfolio, in which case you might end up with another card company.

The Bank Is Shutting Down

Issuers who are running losses may sell their business to a new company. The new issuer can shut down your account and ask you to open a new account with them.

If any of the aforementioned happens to you, here are some questions you may have, and our answers.

What Impact Does a Cancelled Card Have on Your Account?

When an issuer shuts down your account, it can have a negative impact on your credit report. Firstly, the average length of your credit history gets affected, especially if your account was a longstanding one. Secondly, it may even raise your credit utilization ratio, which accounts for 30% of your credit score. For example, suppose you have two credit cards, each with a limit of $2,000. You have a balance of $1,000 on one card, and no balance on the other. If the issuer shuts down the card with no balance, your credit utilization ratio will shoot up from 25% to 50% overnight. For more information, read our post about how your credit score is calculated.

What Can You Do If Your Account Is Closed by the Issuer?

The first thing that you need to do is obtain a copy of your credit report and ensure that the account is correctly reported as "closed" or "closed at lender's request." Check your report for outstanding balances and pay them down ‒ this will help to keep your credit utilization ratio in check.

You may contact the card company to ascertain why it has closed down your account. Sometimes, just discussing the matter with the issuer can lead to your account being restored.

Review your finances to determine how you are using your credit. For example, if your account was shut down due to inactivity, make it a point to use your credit cards for small purchases once every few months, and then pay off the balance immediately. On the other hand, if your card was cancelled because you defaulted, assess whether you should stop using your other cards until you've paid off the outstanding balances.

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