Banks Close Credit Card Accounts and Why?

The Top Five Reasons Banks Close Credit Cards Accounts & What This Means for Your Credit Score

Many people have credit cards to help them out in the case of an emergency. If you’ve ever had your credit card declined, you know how embarrassing this can be. Did you know that banks close credit card accounts, but they have to notify you first? However, this doesn’t have to be by phone; it can be by mail as well. The credit Credit Card Act of 2009 made this  notification process mandatory. The minimum time frame is 45 days in advance. This article will discuss why your bank can cancel a credit card. We will also talk about what happens when your credit card is canceled.

A woman is researching on a laptop why banks close credit card accounts.

1. You or Your Lender Has Changed

One reason why your bank could cancel a credit card is that something changed. If your credit score dropped for some reason recently, your bank would notice. The process of filing for bankruptcy could also make your lender nervous. If you’ve had none of these issues, call your bank. Also, they could have stopped working with that card. If that’s the case, they usually phase them out quickly. Check your credit score; it could be an error that dropped it. If this is the case, you want to dispute it and get it fixed as soon as possible.

2. You Stopped Using the Card

If you find out that your credit card is canceled, think about the last time you used it. If you can’t remember, this is a reason banks close credit card accounts. This happens because the bank isn’t making money with your account. It makes sense your bank would take your card and give it to someone they would make money on. You should use your card at least once every three months. Do this even if it is to buy something small, like a bottle of water. This will stop it from being closed out.

3. You Stopped Making Your Monthly Payments

Many creditors won’t close or suspend your account for one missed payment. However, your lender will suspend your card for two or three months of behind payments. You can usually get it in good standing again by catching up on your payments. Your account will be closed out entirely if you don’t pay for six months. Furthermore, your bank will report your missed payments to the credit bureaus as well.

3. You Rejected a Charge or Rate Increase

You will get a 45-day notice from your lender saying they plan to increase your rate. Also, you have the ability to reject this rate and pay off your balance under the old rate. However, your bank may decide to close your account for this rejection.

4. The Bank Could be in the Process of Closing

If your bank is starting the closing process, they may sell their credit accounts. The new lender they sold the accounts to may close them. The bank wants borrowers to reapply using their terms. You can either reapply to open an account or find a different lender. Compare the new bank’s terms to your old ones and see if it’s worth it to reapply. In addition, you could get a better interest rate, or maybe a new introductory price.

5. Your Credit Issuer Sees You as a Risk

If you’ve changed your spending habits lately, your issuer will notice. Banks close credit card accounts if they think the borrower will have problems repaying. A few reasons that may alarm your lender and banks close credit card accounts are listed below.

  • You’re Not Keeping Current on Payments. Your bank will flag your account if you charge a balance and don’t make the minimum payment. You only have a small window to pay, and it’s usually within 60 days. Your card will be canceled after 60 days if you don’t pay anything on the balance. Finally, the next thing that could happen is the credit account going to collections.
  • You File for Bankruptcy. If you file for bankruptcy, you have to list all of your open lines of credit. Your bank may take your card for this, even if you owe nothing at the time of filing. A bankruptcy makes you a high-risk client.
  • You Try to Get High Credit Lines. Your card issuer might get nervous if you continuously ask for higher credit lines. There is a greater chance you won’t pay it back. Your lender will flag your account if you request too many credit increases. If you continue to ask after this, the bank might close your account.
  • You Lose Your Job. Banks close credit card accounts after they find out a borrower lost their jobs. Also, your lender usually asks for updated information to add to your profile. If you tell them you’re unemployed, they could cancel your card. You have the option of ignoring this request if your employment status has changed.

What Happens if Your Banks Close Credit Card Accounts?

Once banks close credit card accounts, the borrower’s credit rates can drop. The score could do this because you’re late on payments or in default. Your credit company reports to the credit bureaus. This means any late or missed payments as well. Also, these things will cause your FICO score to fall. A second reason your score will fall is that you lose a credit line. This will instantly lower your debt-to-credit ratio.

Banks Close Credit Card Accounts – How do You Prevent a Closed Card From Dropping Your Score?

It is a good idea to apply or reapply for a new card. This will open another line of credit, and boost your credit utilization. You can also close the card and transfer the balance onto another card. This will show you’re using your card, and you’re building a credit history.

This article has gone over the top five reasons why banks close credit card accounts. We also discussed how this will impact your credit score and how to prevent it from doing so. If you follow this article and contact your lender, you should be able to correct this issue. Lastly, you want to act fast to protect your credit score.

Monica Kowollik

Director at CreditFast.com
Monica has covered credit card and personal finance news for over 15 years. From an early age, she developed an interest in financial literacy and saving money. Monica hopes to help others to improve their personal finances one article at a time.

LEARN MORE:

CardMatch™

Best
Credit Card Applications!