Top Reasons Your Issuer Could Close Your Credit Card Account
Have you ever had a credit card account closed just when you needed the extra buying power it offered? It seems that this is not an unusual situation. Reports from 2020 blamed the impact of the pandemic as millions of Americans saw their credit card limits reduced or their card accounts closed.
While you can handle your account responsibly and avoid being in this situation, you could still find yourself impacted by a card closure. Adding insult to injury, a card issuer doesn’t even need to notify you in advance if they decide to close your account.
Why would an issuer close a card account anyway?
You are not actively using your card
If you have multiple credit cards and tend to favor some of them more than others, you may just not be using one of the cards. Depending on your spending habits and the rewards generated by the cards, you may rarely turn to this card to finance your purchases.
This type of strategic spending is good for you, but it’s not in the best interest of the card issuer, especially if the card doesn’t have an annual fee. The issuer is attempting to generate business from your account and has allocated some of its lending authority to your account. If you do not use this card, your account remains inactive and does not generate the fees the issuer would collect if you used the card.
You have not accepted the new conditions
The issuer may have changed the terms of the card and you may not have accepted them. For example, you may have opted for a card based on its attractive rewards program, which you think would more than offset the annual fee of the card. Well, the issuer can change some conditions after your first year as well. This could increase the annual fee, for one.
The Credit Card Liability and Disclosure and Liability Act (CARD) states that a card issuer must send you advance notice of these material changes, which could also include an increase in late fees. payment or cash advance fees, among other things. They must give you 45 days notice in advance and allow you to unsubscribe if you do not agree to the changes. If you choose to unsubscribe, the card issuer is free to close your account.
There are other changes, such as increasing your minimum payment, for which the issuer must give you the same notice but must not give you the right to opt out. And when it comes to closing your account, the law doesn’t even require prior notification.
You have not respected the conditions of the card
One of the reasons for closing the card account which might be no longer in your control is whether you adhere to the terms of the card. For example, you should be careful to make at least your minimum payment on your payment due date. If you repeatedly make late payments, this could be a cause for concern. And if your payment fails, let’s say your check bounces, and this happens more than once, your issuer may want to review your account.
If you stick to your end of contract, you will stay in the good graces of the card issuer and not give them a reason to close your account.
Your situation has changed
Another reason an issuer may close your account is if your income declines, possibly due to job loss. The card issuer can also suspend a card, in which case everyone who holds that particular card will be affected. In this case, the issuer may decide to transfer you to a similar card.
Negative impact of account closures
Closing an account can cause further credit fallout, which could impact your credit score. On the one hand, the total amount of credit you have available would decrease. Therefore, it would increase your use of credit if you spend the same amounts but using a smaller total line of credit.
If the account that was closed was several years ago, the closure would also impact the length of your credit history, which also plays a role in your credit score. However, if this account was in good standing when it was closed, it will continue to be reflected in your credit report for 10 years and will have a positive impact on your credit history.
Therefore, you should use your card at least occasionally to keep it active. If the issuer decides to close a card and you want to keep it, you can try talking to their customer service to see if you can save the day.
What to do if your card is closed
In the event that your account is closed, you have the right, granted by the Equal Credit Opportunities Act, to know why it was closed, except when the account has been closed for dormancy or because you did not have not made the agreed payments.
And keep in mind that you must pay off any outstanding balance even if the card is closed.
The bottom line