Have you ever tried to use a credit card, only to discover it’s been closed without your knowledge? Or checked your credit report to find your score had dropped because the creditor closed your longest-standing account without letting you know? Having credit accounts closed when you haven’t initiated the closure can send your finances — and credit report — into a tailspin. Here are some of the reasons creditors may close credit cards, and some things you can do to keep that from happening.
Why do creditors close accounts?
The Account is Inactive
When you don’t use a credit card, the creditor doesn’t make any money from transaction fees or interest. If you have a $0 balance on a credit card and haven’t used that card in a year or more, you may find the creditor has closed it without notice. It’s a fairly common practice, and creditors aren’t legally required to give advance notice when they close credit cards due to inactivity.
The Account is in Default
Creditors will often close accounts that have defaulted, which is when they reach 180 days past due. At this point, the debt will likely be sold to a collection agency, if it hasn’t been already. Consumers who are struggling with credit card debt should try to avoid accounts going into default. Before it reaches that point, talk with a certified counselor at a nonprofit credit counseling agency, like Take Charge America. We help consumers avoid default, find solutions and work toward paying off credit card debt.
Your Circumstances Change
If your finances undergo a major change that negatively affects your credit, one or more creditors may decide to close your accounts. They may see a drop in income or increased use of credit as a sign of financial struggle and not want to risk extending additional credit. Keep in mind, even if creditors close an account to additional charges, you are still obligated to continue making payments until it is paid off.
What can I do to prevent creditors from closing accounts?
Keep Accounts Active
Although it’s great for your credit score to have accounts with a $0 balance and full credit limit available, it’s not great for creditors. To keep the account active, make a few small purchases and pay them off in full every month. An easy way to do that is to set up billing for a streaming service, like Netlix or HBO Max, then set up auto-pay to pay the bill every month. You won’t have to give it a second thought.
Be Cautious with Credit Limits
Even if a credit card has a high credit limit, consumers should take care not to use all the credit available. Reaching the credit limit on one or more credit cards can be a sign of problem spending or financial hardship.
Make Payments On Time
The single most important thing you can do to keep creditors from closing credit accounts is to make payments on time, every month. If you are struggling to make payments on multiple credit cards, credit counseling and possibly, a debt management plan, may be a solution. Complete our free online financial review or set up a call with a counselor today.