Can a Credit Card Close Your Account Without Notice?
Getting a credit card suddenly closed can be a bad surprise that leaves you scrambling. Unfortunately, credit card companies are allowed to close your account without giving you any notice.
This raises the question – under what circumstances might a credit card company close your account without warning you first? Here are some of the main reasons your account could potentially be closed without notice
Not Using Your Card
Credit card companies keep a close eye on how actively you use your card. If you aren’t using your card at all, or very rarely use it, the company may decide to close the account. After all, an inactive account doesn’t earn them any revenue. According to Experian, to avoid this, try putting a small recurring monthly charge on the card and paying it off promptly. This shows you’re still actively using the card.
Declining New Terms
When credit card companies change their terms, they legally have to notify you in advance. However, you’re also allowed to decline the new terms if you don’t agree with them. For example, if they suddenly hike up the annual fee on your card. If you decline the new terms, unfortunately the credit card company can then legally close your account without warning.
Violating Card Terms: If you consistently pay late, go over your credit limit, or do anything else that is against the terms of your cardholder agreement, the credit card company may decide to close your account without warning. They don’t have to tell you ahead of time if you’ve broken the rules.
Your Credit Score Drops
Credit card companies routinely check your credit score, even for existing customers. If your credit score takes a nosedive because you missed payments on other accounts or have too much debt, the company may determine you’re too high risk and close your account without notice.
Circumstances Change
If you lose your job or have another circumstance that significantly reduces your income, a credit card company may see you as riskier and close your account. Or if they discontinue a certain type of card, your account could get closed when they phase that product out.
Now that you know the main reasons why your account might be closed without notice, what does this mean for you as a customer? Here are a few main effects:
Credit Utilization Spikes
With one less open credit card, your overall credit limit decreases. This causes your credit utilization ratio to jump up, since any balances you’re carrying are now a larger percentage of your available credit. High utilization hurts your credit score, so an unwanted account closure can negatively impact your score.
Credit History Shortens
If the closed account was one of your oldest credit cards, the length of your credit history will take a hit too. Long credit history is important for your score, so having a very old account suddenly disappear can be damaging.
Credit Mix Changes
If the closed card was your only credit card, your credit mix (the variety of account types you have) instantly shrinks. Having different types of credit is optimal, so going from multiple account types down to only loans could also ding your score.
- Use each of your cards periodically
- Don’t miss payments or break the cardmember agreement
- Keep your overall credit score in good shape
- Maintain contact with the card issuer if you have major life changes
Getting your account closed without notice can be frustrating, but being aware of the potential reasons why it happens can help you take steps to avoid it. Monitor your credit reports regularly as well. If an account does get closed, you may be able to call the card company and negotiate it being re-opened if the closure was a misunderstanding. But generally, issuers don’t have to keep an account open or warn you before closing it – so be diligent about using your cards responsibly.
You’ll have less available credit (and a higher credit utilization ratio)
When one of your card accounts closes, you’ll lose access to that line of credit. This means you’ll have less total credit available for purchases across your card accounts. For example, if you had three cards each with a $2,000 limit and then one of them was closed, your total available credit would drop from $6,000 to $4,000.
With less available credit, any balances you’re carrying and any purchases you make will represent a larger percentage of your available credit. In other words, you’ll be using more of your credit, giving you a higher credit utilization ratio.
Going back to our example, if you had a $1,500 balance spread across your three cards and total available credit of $6,000, your credit utilization ratio would be 25 percent. That’s not amazing, but it at least adheres to the rule of thumb that you should try to maintain a ratio under 30 percent. If you lost $2,000 in available credit, this ratio would jump to nearly 40 percent.
Credit utilization is a key factor in building and maintaining a good credit score, making up 30 percent of your total FICO score calculation. So if one of your accounts is closed, you may see your score drop due to higher credit utilization.
You don’t use your card
If you carry multiple credit cards and tend to favor some of them more than others, it may be that you are just not using one of the cards. Depending on your spending pattern and the rewards the cards generate, it may be that you rarely turn to this card to fund your purchases.
That sort of strategic spending is good for you, but it isn’t in the best interest of the card issuer, particularly if the card doesn’t carry an annual fee. The issuer is trying to generate business off your account and has allocated a part of its lending power to your account. If you don’t use this card, your account remains inactive and does not generate the fees the issuer would receive were you to use the card.
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FAQ
Can a credit card company randomly close your account?
If you haven’t used your card for several months, your credit card issuer might close your account for inactivity.
Is it legal for a credit card company to close your account without notice?
The bottom line. A card issuer can close your credit card without advance notice. If you haven’t been using your card or you violated the terms of your card account, that could lead the issuer to close it. If you want to hold on to a certain card, you should make at least minimal use of it and stick to its terms of use .
What is the 2/3/4 rule for credit cards?
The 2/3/4 rule is a credit card application restriction specifically used by Bank of America. It limits the number of new credit cards you can be approved for within certain timeframes.
Should you pay off a credit card that has been closed?
Regardless of why your account was closed, you’ll need to pay any balance you owe. To keep your credit score and financial health in good shape, you need to know the right way to pay off a closed credit card account. Here’s our guide to how to pay a closed credit card account.