There’s little more embarrassing than having your credit card rejected when you’re trying to pay for something, even if it’s just a misunderstanding and a quick phone call to your bank fixes it. But imagine finding out instead that your issuer closed your account and you don’t have access to your credit limit any longer. Now what?
This scenario isn’t that common. In fact, issuers have to give you 45 days advance notice that they are going to close your card (that may not mean a phone call), so you’re more likely going to find out while opening the mail. But that doesn’t mean it still isn’t a punch in the gut. And the fact is, there’s little you can do about it. Issuers pretty much have the right to change or close your account at their discretion.
The CARD Act of 2009 requires issuers to notify you of a rate increase — or any other significant change in terms to your credit card account, including closure — at least 45 days in advance of the effective date. This notice must be clear and conspicuous, and will give you the opportunity to close the account. If you decide to close your account to avoid the new terms, issuers won’t be able to charge a penalty fee for closing your account, place you in default just because you closed your account while you still owe a balance, or require you to pay your balance in full immediately. But if your card issuer does raise your rate (or tells you it’s going to), and you close your account, your card issuer can require you to pay back your balance over five years or double your previous minimum monthly payment.
Here are common reasons cards are closed.
1. You’re in Default
If you haven’t made a payment for 180 days or more, the company is likely to close your account. If this happens, the credit card company will probably sell your debt to a collection agency, and that’s who you’ll be dealing with from now on. Your credit score is likely to take a major hit if this happens, and the negative mark will likely stay on your record for seven years. You can also probably say goodbye to any outstanding rewards you hadn’t cashed in.
2. You Aren’t Using Your Account
It’s just as the old saying goes: Use it or lose it. If it’s been forever since you used your card, the creditor could close it for the simple reason they aren’t making any money on you. And it’s more than just an inconvenience to you, because your credit might take a hit when that happens. Why? Because the amount of credit available to you immediately goes down. That means your credit utilization ratio, one of the five important factors in determining your credit score, will immediately jump. And again, there’s those lost rewards …
3. You’ve Changed (or They Have)
Has your credit score taken a major hit recently? Have you filed for bankruptcy? If so, these are reasons a credit card issuer might decide to close your account. Or they could be making changes, like phasing out the card you have or just no longer offering the terms they offered to you. Either way, it’s good to figure out exactly what’s going on and how it might be impacting your score. If it’s an error on your credit report that led to the closure, it’s a good idea to dispute that and fix it right away.
Avoiding a Credit Hit
While there’s not much you can do to get your card reinstated once it’s closed, there are steps you can take to ensure you don’t take a hit to your credit score.
“From a credit-score perspective, one of the best things you can do if your card is closed is transfer any balance you might have on that card to another card, if you have one, so at least you’re showing usage and building history on an active account that’s open,” said Thomas Nietzsche, a credit educator with ClearPoint Credit Counseling Solutions. “If there is no balance, that’s kind of rough because you’re basically missing out on that history, especially if you’ve had it for a long time.”
Nietzsche also recommends getting another card or a credit-builder CD as soon as possible, even if you need to get a secured card because your credit isn’t great. It will really keep it from worsening due to the closure.
Remember, one of the best financial gifts you can give yourself is staying on top of your credit score. You can get your credit report from AnnualCreditReports.com, which you can do for free once a year. You can also see two of your credit scores for free each month on Credit.com and monitor how your payment history and other factors are affecting your credit.
More on Credit Reports & Credit Scores:
- The Credit.com Credit Reports Learning Center
- What’s a Good Credit Score?
- How to Get Your Free Annual Credit Report