3 Reasons Why Your Credit Card Account May Have Been Closed

When your credit card account has been unused or inactive for a long time, the creditors might close it due to inactivity on your behalf. 

But what happens next?

What happens once the credit card account is closed? Can you reopen it? What happens to the balance available in that account? We’re sure you are also looking for answers to these questions.

Here’s everything you need to know about what happens when the lender closes a credit card account.

3 Reasons Why Your Account Is Closed

If you don’t keep up your end of the bargain, your credit card account company may shut your account. The three most typical causes for account closure by issuers are listed below.

1. You Have Defaulted

Your credit card account provider and you have a rather basic contract. They promise to give you money in exchange for your agreement to repay them. At the very least, you commit to making minimum monthly repayments by the due date.

If you stop paying completely, the card company will naturally refuse to extend you any further credit. If you haven’t made a payment in 180 days (about 6 months), your account will most likely be closed.

2. Your Account Is Inactive/Unused

Failure to pay your obligations isn’t the only reason a credit card account company will shut your account. Even if you have no balance, you may find that your account is closed due to inactivity. When you use your credit card account, the issuer earns money through interchange fees (also known as “swipe” fees). If you cease using the card, the provider may decide to close it since the account isn’t profitable enough to keep it open.

3. A Change In Your Account or Provider’s Policy

Your account may be canceled due to a change in your financial records. This is a little more difficult to pin down because the reason for the account closure isn’t always evident. It’s possible that your credit score has decreased dramatically, and the provider now sees you as a high-risk borrower.

It’s also conceivable that your credit card account provider no longer provides the same conditions as before or that your current card is being phased out. Whatever the situation, if you change or the firm changes what they wish to provide its consumers, the corporation has the right to terminate your account.

What Happens Once Your Account Is Closed?

If the credit card company cannot recover the money they lend you, the company then sells the unrecovered debt to the collection agency. Then all your dealings would be done with the collection agency. This would affect your credit score, and the account might stay up on your credit report for up to seven years. 

If your credit card account was canceled due to delayed payments or major missed payments, those delinquencies would influence your credit score. These late or delayed payments will stay on your credit record for seven years, but as time passes and you add good information to your credit report, they will have less impact on your credit score.

Can You Reopen Your Account?

Credit card providers are not obligated to reactivate a deactivated account. Furthermore, any accrued credits lost when the account was canceled are unlikely to be recovered. 

However, what you can do is you can get in touch with your credit card provider straight away and ask to reactivate the account. If you dispute it straight away, you might be able to negotiate with the card issuer to get your account reinstated. 

The other thing you can practice is using your account every few months to keep it working – so that the credit card company doesn’t close it.

Furthermore, see for yourself if the open accounts are worthwhile investing in. There is no point or rationale in paying the annual fee if you do not often use the account. If you still want to keep your account active and running, you can reduce your card to a no-fee card offered by the credit card company.

Will a “Creditor Closed Account” Affect Your Credit Score?

The phrase “account closed by creditor” or the statement that a creditor canceled your account does not influence your credit score. Luckily, the credit rating system ignores this form of comment. However, closing a credit card, whether by you or the creditor, might negatively impact your credit score by increasing your credit utilization. 

For example, if you have a balance on the card or high balances on all of your other credit cards & this was the only card with considerable available credit, a secured credit card might affect your credit score.

Accounts that are closed in a good state will be on your credit report for ten years or for as long as the credit bureau deems it appropriate for reporting positive closed accounts.

Final Word

When your card is inactive, the card issuer receives no revenue from merchant transaction fees or interest if you have a balance. Because credit card companies can only lend so much credit to their consumers, they may close your account and offer that line of credit to those who will utilize it.

Furthermore, credit card account issuers are not obligated to provide any advance notification. Despite the fact that the Credit Card Act of 2009 requires creditors to give consumers 45 days’ notice of substantial changes to their accounts’ conditions, courts have ruled that a card termination due to inactivity does not qualify.