Why Credit Card Companies Close Accounts Without Telling You

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Credit card issuers may close accounts suddenly and without notice. This can be done for several reasons—maybe you haven't used the card in a long time, or you've breached the terms of the card agreement, for example. There are other reasons as well, all of which can help the credit card company reduce its exposure to financial risk.

Understanding the different things that can trigger a closure can help you avoid having it happen to you.

Why Credit Card Issuers Close Accounts Without Notice

Here are some of the more common reasons why a credit card company may close your account without telling you:

  • You've stopped using your card. Credit card issuers often close accounts that haven't been used in a while. Unfortunately, there's no hard-and-fast rule for how often you need to use your card to avoid having it closed, and that timeframe can vary from issuer to issuer. Using an account to pay a small recurring bill, and paying it off immediately, can help prevent this from happening.
  • Your account is in default. If you've stopped making payments on your credit card, closing it may be the card issuer's way of keeping you from making any more purchases. This can also occur if you simply have too many late payments on your account, even if you catch up in time to avoid default.
  • You've consistently exceeded your credit limit. If you're constantly going over your credit limit, the card issuer may view it as a risk that you're unable to manage your debts well. It's unlikely to be a problem if you do it once or twice, but regularly stretching your credit accounts beyond the limit could result in an account closure.
  • Your credit score dropped significantly. Credit card issuers run routine credit checks on existing account holders to make sure they're still managing all of their debts well. If you've missed payments on other accounts, your credit score may have dropped below the cardholder's minimum credit score requirement.
  • You've breached the terms of the card agreement. Each credit card comes with an agreement, and if you do anything that breaches that agreement, your account may be shut down. This typically occurs among credit card rewards enthusiasts who use questionable practices to maximize their rewards.
  • The card has been discontinued. Credit card companies periodically discontinue certain cards. Depending on the situation, you may be able to continue using your card even if it's closed to new applications, or you may be offered a different card as a replacement. In some cases, though, the card issuer may simply close the account.

Credit card companies may notify account holders before closing their accounts. They aren't required to, however, which means closure could come as a complete surprise to the cardholder. Thankfully, there are steps you can take to avoid closure in the first place.

How a Closed Credit Card Account Impacts Your Credit

Even if you rarely used it, an account being closed has the potential to have some major impacts on your credit.

Credit Utilization

One of the most important ways an account closure can affect your credit is if it causes your credit utilization rate to spike. Your credit utilization indicates how much of your available credit you're using at any given time, and a lower utilization is better for your credit score.

If a card is canceled, you lose access to that available credit, and your credit utilization rate will increase if you have balances on other credit cards.

For example, let's say you have a $0 balance on a card with a $10,000 limit and a $2,500 balance on a card with a $5,000 limit. Your overall credit utilization rate between the two cards is roughly 17%. But if the card with the $10,000 limit is closed, your overall utilization rate jumps to 50%.

Keeping your utilization in the single digits can help you achieve an excellent credit score.

Positive Payment History

If you've had a credit card account in good standing on your credit report for several years, the account's positive history can help improve your score. If that account gets closed while it was in good standing, it'll stay on your credit reports for up to 10 years, but it won't carry as much weight as an open account would.

Furthermore, closure of the account means no additional on-time payments will be added to the account, which can hamper your progress improving your credit score—especially if it's one of only a few accounts you have in your name.

If there were negative items on the account, such as late payments, those will remain on your report for seven years.

Length of Credit History

The longevity of your accounts also factors into your credit score. Credit scoring models look at the age of your newest account, as well as the average age of your accounts. If all of your other accounts on your credit report are newer, the dropping off of a much older one can ding your score. If you have to open a new account to replace the closed account, this can have an added effect.

Credit Mix

If you only have one credit card, losing it could impact your credit mix. This score factor considers how many different types of credit you have—installment loans and credit cards, for instance. If you have multiple credit cards, though, having one closed may not have much of an impact on this credit score factor.

How to Keep Your Credit Card Account Open

If you want to avoid a situation where your credit card gets closed without notice, here are some actions you can take:

  • Call the card issuer and ask when they typically close accounts due to activity.
  • Put a small recurring charge on your card to avoid letting it go unused.
  • Set up automatic payments to ensure timely payments every month.
  • Read and follow the card agreement to avoid any breaches. If you don't have your agreement handy, call your card issuer and ask for a copy.
  • Manage all of your other credit accounts well.
  • Avoid using your card if you're consistently bumping up against its credit limit.

Use Credit Cards Responsibly to Benefit Your Credit

By continuing to use your card responsibly and paying it off every month, you can help improve your credit. Since on-time payments, the longevity of accounts, credit utilization and credit mix factor into your score, keeping your credit card in good standing is beneficial, even if you only use it for small, occasional purchases to keep it active.

You can also monitor your credit for free to see where you stand and to make sure your credit card accounts remain open.

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