Credit Card Companies Are Closing Unused Accounts
Published on - January 6th, 2009 (Modified on - February 3rd, 2012) (by J.D. Roth) Several GRS readers have written lately with the same credit card problem — but not the one you’d expect. Perhaps in an effort to cut costs, credit card companies are beginning to close their customers’ unused accounts. Nicole shared a typical experience:
I’m 26 and have a solid 8-year credit history. Despite really wanting to get rid of some of my old credit cards that I never use, I’ve held on to the accounts since they help my credit history.
I just got some bad news about my oldest credit card. Because I haven’t charged anything on the account in 13 months, the account has been suspended and closed. I called and was told by several people that there is nothing I can do about it. It’s as if the years I’ve had the account for and the fact that I’ve always paid what I owe means nothing. And for my past loyalty they’re willing to potentially make me take a major hit on my credit score.
I feel like I’m being penalized for doing the right thing. Other than writing a strongly worded letter to Capital One and asking my other credit card companies to increase my limits, is there anything you can think of that might help me to minimize the hit on my credit score?
Other readers have reported similar problems. The irony of this situation is that it only affects people who are using credit cards responsibly. It’s important to note that although closing a credit card — whether you do it or the bank does it — will affect your credit score, the damage is generally minor, and your score should recover quickly. Still, if you’re planning to apply for a loan in the near future, this could be a nasty surprise.
If this has happens to you, absolutely ask the credit card company if there’s anyway to reverse the closure. Be firm but polite. Ask to speak with supervisors. It’s unlikely that they’ll change their minds, but it never hurts to ask.
You might also ask the issuer to grant you a new card with similar terms. You’ll still suffer a ding to the “length of credit history” portion of your credit score, but you’ve lost that already. By obtaining a new card, you’ll at least recover the “credit utilization” portion of your credit score.
If this hasn’t happened to you, there’s an easy way to prevent it from occurring. If you have an unused credit card account that you maintain simply too boost your credit score, make a charge or two every couple of months. Pay off the charges immediately, as normal. By using the card once in a while, the issuer will consider it active, and you won’t be at risk for taking a hit to your credit score.
And, of course, if you’re carrying balances on your cards, this isn’t an issue. You folks should continue to pay down your debt as quickly as possible while not using your cards for new purchases.
For more on this topic, check out this anatomy of a credit score.
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I agree with Tom’s comment, comment 11. In Australia I’m not sure if it is exactly the same as the UK, but it sounds similar.
I recently looked at how much I would be able to borrow to buy a house, and the amount I could potentially borrow is directly related to the limits on any credit cards or other loans I have, and my earning capacity. So say I had a credit card limit of “x” and another loan to an amount of “y”, the amount I could borrow for a house is determined by how much I can repay due to my earnings, minus “x” plus “y”.
So unlike the US, where seems like the more existing credit you have available, the more someone is willing to lend you, it seems to be the opposite. The less existing credit you have, the more someone is willing to lend you, assuming you can prove that you have a steady and reasonable income with which to pay the loan back.
If lenders in the US have been lending more money to people who already have numerous credit cards / loans, because they have a good credit rating, then it’s no wonder this whole global credit crunch / recession thing is happening. I mean people who already have a lot of credit available are probably going to be pretty stretched financially, and are probably going to struggle to pay back any additional credit.
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This happened to me last month. There seem to be a lot of people worried about credit scores (not my concern) and saying that the CC companies have a right to close unused accounts.
Well, fine…but the reason it’s obnoxious for me is that I no longer have that credit available to me, should I need it.
Chase effectively pulled my security credit card out from under me, without my permission and without giving me time to change their mind. As a single, female student…that sucks. Bad. What if my mom gets sick and I need to fly out to be with her? What if I need to repair an expensive part on my car so I can continue to get to classes? I don’t have emergency cash for that right now (disputing whether I should have that cash isn’t the point) and now I also don’t have any emergency credit to put towards those costs. Great. Thanks Chase.
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If you aren’t using the card, you aren’t being responsible to the credit card company, you are just overhead to them and might start using the card after you lose the ability to pay.
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I had a card closed on me a few months ago. I actually never used the card, not even once. I opened it to get cheap financing on a new computer, but ended up paying for the computer with cash.
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I have a bill that automatically gets charged to the paid-off card every month, and an auto-payment sent through my bill payment website sent to the card on the same day. There’s activity, but no balance for even a day. Win-Win!
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We called to cancel a Chase card a while back and they tried their best to talk us out of it. We hadn’t used it in quite a while and I was (and am) more concerned about potential identity theft than any credit score. We waited a day or two to think about it, and then called back and insisted they cancel it. It gets to be a big hassle and risk to have too many cc. Maybe I’m a bit “lax” on this issue since I’ve just been able to borrow money from family that we needed, and not the bank. But, I’d rather not have the risk of so many cards.
We got a AAA card originally because of the benefits ($50 gift card to their store for every $5K spent) and then they cancelled the benefit. So, I decided to find a different rewards card. Still have the AAA card because of the gas discount for when we are in the states, but use the other rewards card all the time now. But two is enough. I don’t like thinking about more than 2.
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Perhaps they should change the name to Spending card instead of Credit card.
A credit is to be used when one needs it, but the cc company wants to see activities all the time, which raises the potential for them to call finance charges ( I understand it’s a business) I know some folks here will say that it’s better to build an emergency fund which I strongly advocate. but even for folks who are debt free, they still have expenses which means building an EF is not an automatic thing.
we don’t have cc debt, but we have a card that is used for auto payment, which is paid before the transaction is made.
as for the other cards I got them on rotation 1 card per month for one transaction, then it goes back to the vault. That’s my solution to be a responsible spender i.e. carry no debts, because the reality is we live in a Credit Score society.
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@ Ashley #52.
“What if my mom gets sick and I need to fly out to be with her? What if I need to repair an expensive part on my car so I can continue to get to classes? I don’t have emergency cash for that right now (disputing whether I should have that cash isn’t the point)”
But that is exactly the point, or one of the key points, of this blog–the “emergency fund” or whatever you like to call it. What you should be striving for is to never have to rely on a credit card or a HELOC for unanticipated expenses. So do whatever it takes to have that money saved in advance. Work a little extra, cut out any unnecessary expense, etc., until you have that safety margin. In the mean time, for the type of emergency expenses you mentioned, I would imagine you might be able to borrow money from friends or your church or other organization, or in many cases an employer.
The idea that you need credit cards “for emergencies” was invented by the credit card companies. Before then it was called “saving for a rainy day.” Then the mortgage companies got jealous of the windfall and started telling everyone that they also needed a continuous and indefinite second mortgage available on their houses for the same reason. Only they came up with the less offensive euphemism “line of credit.”
Save your own money for a rainy day.
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I have a recurring charge on my CC which prevents this from happening to me. I wish I didn’t, but at least I won’t take a hit for having an inactive card.
I feel bad for Nicole, but then again I had always heard that if you have a card you are not using, you should close it out right away. (Gosh, there are so many rules!)
Always remember that to the CC company, if you are not charging, you are not “doing the right thing” for them (ie, making them money).
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Ryan
Ashley knows she shoul have an emergency fund, it’s not build up yet, and if I’m right she is talking about a big emergency, I have a small fund, a few $K, now say my furnice dies, then my car, and, and I need more then I have, so I kept a CC,
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Dave, Ashley,
I know and I understand that. I’m not trying to be harsh. My point is just to argue against the mentality that we should rely on revolving credit, or credit secured against our houses as a remedy to unanticipated expenses.
Neither of these things were available to our grandparents’ generation and that’s one reason their savings rates were higher.
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Your credit card company dumped you?
Good. Return the favor. Dump your credit cards.
My household became credit card free years ago and have been pleased with the lack of their influence on our lives. Yes, I can still rent cars, make online purchases and travel for business.
Not having a credit card isn’t the end of the world. It’s the beginning of living inside of your means and having to find ways to do for yourself.
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My point is becuase we are responsible with not using it, they take it away and we don’t have the security of it.
I don’t want to make my life more complaceted by having to use it every few months, I’m running some risks by having high dedutable insurance, I could pay more for insurance, then have less to save, with I am doing, so in a way I was getting free or low cost, insurance from my CC.
different times, different tools. my great granparents lost a house to the grosery store.
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This happened to me by Chase but I don’t see it as a problem. I tried canceling the credit card a couple years ago but they were so persistent on the phone, I finally gave up. So, in my mind, Chase did me a favor by canceling it. Your cedit score takes a slight ding but it isn’t a big deal.
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First of all, most of you need to read JD’s other articles about credit scores and what effects them. Many of the comments posted are incorrect when it comes to what causes a score to rise or fall.
Second, many of you also assume that because you aren’t buying a car or buying/refinancing a house, your credit score doesn’t matter. Well it does. Credit score is used by many other places including apartment rentals, insurance companies, and potential employers. That’s right, your credit score could cause your car insurance to increase or could cause you to NOT get a job. My last 3 employers have all run a credit report on me along with the company from which I bought life insurance. The companies see people with high credit score as more responsible. If you are responsible enough to pay off your debt and manage finances properly, then you are less likely to be a slacker employee or poor driver. Yes, I realize how dumb this sounds but that doesn’t change the (scary)reality of it.
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This is great news for the credit card companies AND the consumers. I’m amazed by the whining from the woman whose account was closed. It shows how American culture has become way too dependent on debt and credit scores! As others have mentioned, your credit score will drop in inconsequential amount, if at all. Second, people see on your credit report wether you carry a balance on the card. They will know that an card that’s been open for 5 years with no balance is essentially meaningless in terms of commenting on your ability to handle credit. Almost every American would be well-served to have half or all of the credit cards in their wallets cancelled.
This happened to me with a Chase Visa card. I didn’t mine one bit. It actually made me happy to realize that someone at the company had woken up and started paying attention to who held their cards and how the credit was being used. I hadn’t used my credit card with Chase in several years. If I were a company, I’d want to have a better sense of my accounts and how much of a credit line I was extending, and I’d probably also want to cancel useless accounts that weren’t active.
JW – please don’t encourage your readers to game our ridiculous credit card and credit score systems. Instead, if people save and live without debt, they’ll be just fine.
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This just happened to us, too. The only problem is that it is the only card my husband has in his own name — i.e., his solo credit should I be hit by the proverbial bus. He got 60 days’ notice, however. My business card also got its credit line reduced — but it still is a few thousand higher than I’ve ever charged it.
Ironically, I asked Chase to close one account, and I just saw that they didn’t do it.
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I think people are going both extremes. There needs to be a balance.
I think it’s foolish to have too many credit cards.
I also think it’s foolish to have NO credit cards.
If you are responsible with your finances having one credit card isn’t making a “pact with the “devil”. It’s a means to use your money, and have some side benefits such as credit protection from online theft, etc.
I would never in my life be naive enough to use a debit card as a method of purchase for anything online or at places such as a gas station.
For CC’s they give you theft protection. Most companies extend that to debit cards but I wouldn’t trust them more than I can throw them for that. Can you image having your bank account funneled out while you’re trying to fight to get the money back?
Also in my mind, a cc is for small purchases that are paid off in full monthly. Not paying for a new roof on your house, etc. Having a “house” fund and/or an emergency fund is much better for that.
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Really interesting comments. I also agree that a CC is not inherently evil and if you use it responsibly it should not be a problem. But I still rather have a $20,000 emergency fund than a $20,000 credit limit on a “spending” (I like that) card. We have only ever had 1 spending card.
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Closed one of two MBNA card accounts in ’07. One is enough; don’t need twins.
CapitolOne suspended and closed my card account last month.
I stopped using the card last year because the customer service was terrible. Cap1 will send me a check for the unused bonus points. Told them that I would use the check to throw their going away party. Good riddance.
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I just had a similar experience. I had a Citibank card that I never use with a 20k limit. Yesterday in the mail they sent me a letter that they were lowering the limit $2500 and could close it if I continue to not use it.
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I experienced a variation on this theme when I received a letter yesterday reducing the credit limit on Citibank mastercard down to $3000 – I never charge more than a couple of hundred dollars on it a month and pay it off every month on time. I guess they decided I wasn’t using it enough. At first I was chagrined – I have a great job and am responsible with my credit so they are punishing me to compensate for the fact that they were irresponsible about extending credit to high risk customers. Then I was like – oh well – who cares?
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I’m becoming less and less concern over my credit score. I check it to make sure there isn’t any fraudulent charges or mistakes.
I’ve been told my score it low since I don’t have enough credit history. I believe it is because I don’t have a ton of credit cards. I have one active credit account account and one that is probably going to close due to inactivity.
We’re paying out debt down and building savings. The score I’m looking at is my account balances.
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This happened to me this week – a card I got about 16 months ago (and paid off immediately after buying a computer) was closed without warning.
Fine with me – I had been planning to close it anyway, but had put it off because of the hassle they usually give you when you try to close an account.
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to Ben in #65:
“Credit score is used by many other places including apartment rentals, insurance companies, and potential employers. That’s right, your credit score could cause your car insurance to increase or could cause you to NOT get a job.”
I get that. But my point is for pulls like those the difference of a few points or even a few dozen probably doesn’t make a Yes/No difference if your credit is good. I have no problem pulling your score religiously IF you are rebuilding your credit back to the mid-high 700s. I just don’t think it’s necessary for folks with high credit scores to pull them as often or focus on them as much. They probably only need to focus on it in six months to a year leading up to obtaining a new secured loan where the score can impact interest rates along a sliding scale.
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I just got a letter in the mail the other day from Citi Cards (Citibank Business Credit Card) regarding my credit limit being lowered. My credit limit was around $34,600 although I never charged more than a couple thousand dollars. Over the past couple of years it went up and up without my request. The letter told me they adjusted my limit, based on my prior spending, down to $5500. So, I suppose it is all a part of the companies trying to hold back potential future losses. The next to big problems after the mortgage mess will be 2nd mortgates (HELOC’s) and Credit cards–good to see the company’s trying to halt the coming disaster now–six to tweleve months ahead of time.
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I find this really surprising. I had paid off all of our cards, but then ran one up badly when dealing with my mother-in-law’s last illness and death. Last month’s payment was posted one day late, and even though it was for THREE TIMES what the minimum payment was, the company hiked the rate to 27%. I looked through all the credit card offers for lower financing and chose one on a card that I have for 0%. Called the offices, talked to a very nice person, who said I hadn’t used it since 2004 (when I paid it off), and offered to send me $ 27,000! Way more than I needed or wanted, so I just transferred the balance. It seems strange, though, that I could get so much credit so easily after not using that card for 5 years.
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Personally I would not mind a bit if all the accounts I don’t use closed themselves. It would save me a bit of trouble. My score is in the upper 700′s and I don’t plan on borrowing anytime soon; also, the card I use is the oldest one and the one with the best rewards. I am a lousy customer; I pay off my balance in full each month.
That being said, I am not a bit surprised that Capital One started the rush. They are the worst of everything credit card companies have to offer. You could not pay me to carry their card. What they did to my husband years ago is now called “predatory lending” and is illegal; the lawsuit against them at the time failed to put them out of business but instead made them more subtle. If you have their card, read the fine print!
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I view having a credit card as a privilege, not a right.
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Thank you everyone for the comments! I’m the Nicole who asked the question and I really appreciate all the feedback.
Kristy – I’m not whining about it. I’m asking for advice from people who have more experience than me if I should be concerned and how I should deal with the situation. I hope you can respect that.
My husband and I are very frugal and are managing our money well. However my husband is about to graduate from chiropractic school so we have a lot of loans and will have some big expenses coming up (opening his practice, potentially buying a home in the next few years) so I have been working hard to keep our credit scores as high as possible. It sounds to me like since this is happening to many people it may not be a problem (and that now I don’t have to keep debating if I should cancel that card since I never use it – partly due to the high interest rate!).
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They just did you a big favor. You just don’t see it yet. Someday you will.
Now, if you could get the rest of your creditors to cancel those accounts then you will really see the light.
I have debated the use of CC so many times my head hurts and I have yet to hear a compelling reason that outweighs the risks. Not one.
The man is getting out of your way. Don’t stop him.
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No idea if someone already made this comment. I’m not reading through 81 comments. I take exception with this comment, “I feel like I’m being penalized for doing the right thing.”
Right thing according to who? How naive. The right thing for the credit card companies (aka “snakes”) is for you to charge it up to your limit and make minimum payments. Incur lots of fees. What’s right for you and what’s right for them are two very different things.
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Credit card companies are doing lots of unsavory things in the midst of the crisis. I had Citi double my APR (I opted out, thank you) and AMEX shredded both personal and business credit lines. All this with a perfect credit history and great FICO score. Just today I read that AMEX is screwing people in the UK on interest rates: http://tinyurl.com/7wmax9
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Same happened, but it turned out that I couldn’t find the old card. So when I called they ended up canceling the old number and sending me a new card anyway.
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I worked in the credit card industry for a while and was surprised to learn that the common term to describe folks who don’t carry a balance is deadbeat! I never thought I would strive to be a deadbeat but I am and am proud of that fact!
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One other note about an individual’s credit rating that is very important.
The MORE credit you have access to, the LOWER your credit score is when being considered for a new card or loan.
This is because may be of greater potential risk to the card provider in the case of a personal crisis, fraud, etc. It also costs a lender to keep your card open, as this is exposure to you (the counterparty), and lenders must keep capital aside for that exposure.
Keeping active only the credit that you need (credit cards, lines of credit, etc.) will help you maintain the highest credit rating.
I would suggest to those who are keeping unused cards active for long periods of time that the bank`s actions are beneficial to you.
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Todd M Says:
“The MORE credit you have access to, the LOWER your credit score is when being considered for a new card or loan.”
Are you sure?
If so, how did I get an 810 credit score with $114k credit available? If I cut that down near zero, will my credit score increase? If what you’re saying is true, then the impact is amount of credit is minor.
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A friend brought this to my attention. He had an account with a furniture store abd paid it off 4 months ago. The sent him a letter yesterday telling him that they were closing the account for inactivity and were reporting it as “creditor closed account”. He was worried as he has been trying to rebuild credit after a divorce. I know he will take a hit on his credit score though it wasnt a long term account. I was more interested in how the comment “creditor closed account” would affect it.
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I’m surprised more people haven’t latched onto the idea of setting up a bill to be billed to an unused card. My husband and I are rebuilding credit right now and I have two small monthly fees and our cell phone bill charged to our two cards. This way there is SOMETHING on them every month and it looks as if we’re using them far more than we are. It’s doubtful that our CU will cancel either of them, but this way we not only earn some rewards but rebuild credit at the same time.
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