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.
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.
Note that it is also important to cash out any unredeemed rewards you have at dormant credit card accounts. We accumulated almost $100 in cash back with an HSBC credit card we stopped using. The card required my wife (the primary account holder) to call during business hours to redeem the cash back, and that call kept getting pushed down her to-do list. Then we got a letter that HSBC had closed the account because we hadn’t used the card in a few months. My wife called up the next day and they refused to send us the cash back,… Read more »
This happened to me about a week ago. In ’06, I opened an Apple credit card to take advantage of the ensuing discount when purchasing an iPod. I NEVER used this account otherwise and actually kept planning on closing it but never got around to it. Finally, they sent me a notification that the account had been closed due to inactivity. My oldest credit account might be at slight risk, because I recently paid it off (after having carried a balance but not using the card for over a year). However, my second oldest account (which also has the largest… Read more »
I wouldn’t care about this in the least. Most Americans would be far better off if they worried less about their credit scores and more about their savings balances.
The path to Getting Rich Slowly is to earn interest, not pay it.
If you play with snakes, you are going to get bit. I can’t believe at this point people still think the credit card companies actually care about anything other than profit. And the way they make profit is for people to carry balances. We keep one credit card in the house, primarily because I travel for business and don’t want to float several thousand dollars of travel expenses out of personal funds. We do not use it for anything else, everything else is paid for in cash or by debit card. If we can’t afford it, we don’t buy it.
Last I checked, having a credit card was not a right, nor was having an account to remain open a given right. The issuer has the right to terminate an account at anytime. Be glad they closed your inactive account rather than calling in a balance you owe in full – which has happened to other.
Once again, read before you sign up for something. Its all listed in the Terms.
I agree that this is not totally unexpected. However, it is a bit of a downer that it will affect the scores of the responsible. I wouldn’t care so much about my score if I wasn’t preparing to refinance my mortgage to a shorter term and a lower rate.
This may be slightly paranoid of me, but I really do think that credit-issuing companies try to make your credit score sound more important than it is. If they can convince you that it’s a life-changing number, it makes you more likely to pay them on time, or essentially to do whatever they say will improve or preserve that number. Your credit score doesn’t matter as much as they’d like you to think it does. No one’s going to refuse you a mortgage because your credit score dropped from 770 to 765 after closing an old account. Your credit score… Read more »
“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.” HAHAHA!! Loyalty? Doing the right thing? Take a step back for a moment and look at it from the business’s perspective. You are NOT loyal, because you HAVEN’T been using the card. Simply holding a card is not loyalty. You are NOT doing the right thing in the credit card company’s eyes. Doing the right thing would be running up a bunch of charges, not paying your bill every month, and… Read more »
Seems like the CC companies are doing more to screw their customers in order to make a quick buck to meet financial goals/
I have been hearing about this problem over the last few months. Since then, I try to use both cards I have at least once a month. I then pay them off immediately. I use one of the cards quite a bit anyway, because of its rewards program, so I have to remind myself to use the other card periodically.
As a UK reader I find this quite surprising. It works completely differently in the UK. 1) If an account is closed the information stays on your credit report anyway, you keep the proof of a good repayment history (or evidence of a bad one). 2) Unused credit is a BIG no no over here. If you have a heap of unused credit cards it looks worse than if you don’t have any at all. A lender looks at how much you have available to you already and if they see a lot of credit available then they wonder why… Read more »
I actually just had a credit card company charge me an annual fee and then two weeks later close my account. It was a card that I carried a small balance on and had been in the process of paying off (and all of my bills had been paid on time).
*shrug*
It really irked me, but I sent them a letter and they refunded the fee to my account.
Tyler made an excellent point up there.
It is not accurate to say that closing an old unused card will adversely affect your credit score. If it does it won’t be because you have a shorter history. If you could erase your credit history by closing accounts people would do it to their benefit. A closed credit card will still be on your credit history for another 10 years. By that time it will have minimal impact on your credit score, because things are heavily weighted towards your more recent history. The way that it can have a more immediate impact is if you close an unused… Read more »
Same thing happened to me with a Chase card. Got a letter in the mail and since I hadn’t made a charge in 24 months, the account was closed.
I was a little bummed about the credit score thing, but then I figured, it’s one less card to keep in the safe. I’m not planning to apply for a loan anytime soon, and one less card is just fine by me.
I just got my own copy of that letter last week, at least I know it isn’t just me now…
My older card is twice as old and has twice the credit limit of the rewards card I use day-to-day (and pay off monthly). To keep it open, I have my electric company auto-billing the credit card each month. This saves me from having to write a check (I couldn’t set up online payments for the electric company if I wanted to), AND it keeps my oldest credit card (which I CAN pay online) active. Plus, I like having a second card around for when I discover the first one has expired (and the replacement is lost in the mail),… Read more »
Is this really that big of a deal? I’ve had two cards, that I haven’t used in years, closed within the past six months or so. My reaction was basically, “Meh. Saves me the trouble of canceling them myself.” I’m left with the single card that I use regularly, and pay off monthly. I see this as a good thing. It’s probably bordering on heresy to admit this, but I don’t even know what my credit score is. Furthermore, I don’t really care. I run the free credit report once a year (The free report doesn’t include the score. You… Read more »
It is quite amazing to me that our society is so stuck on our credit scores. I have heard people “mention” that they are “qualified” to purchase high end consumer goods, of course with no interest for 12 months, and x amt of dollars per month. I used to be envious of those folks because they got anything they wanted. Now, when I hear the word “qualify” and cringe, because that is just more consumer based, depreciative debt to get into (ugh). I am a single mother with a 12 year old som. I used to have horrible credit, and… Read more »
I had this happen to me too, I kept one card, kept it in my file box just in case I really really needed quick money, now it’s gone, luckily I opened the letter, most gets tossed with the junk mail.
Good Riddance! Wasn’t the last post about the evils of credit cards?
Ehh..I got two warring sides on this. On the one hand, it’s nice that the CC companies are closing accounts that I don’t use since I would be doing that eventually. And with the person’s cc closing. It’s Capital One. What did you expect?! They are one of the worst CC companies out there. BUT on the other hand, I’m looking to buy a house this year: In this terrible economy. With credit literally frozen and lenders now going to new extremes with the tighening. In a crazy expensive housing market (So. Cal) so having my credit score lowered. Not… Read more »
Before I get to wrapped up in the CC companies evil scheme to undo my hard won FICO score… Has anyone ever not gotten a loan and can be reasonably sure it was because they canceled a credit card and not due to some other factor in their credit history? I’m guessing “no” here btw… My feeling is that canceling a credit card does indeed have a negative, albeit minor, impact on your FICO. If canceling a card means that someone is not going to get a loan (or a good loan), then it also means that other aspects of… Read more »
Because of the mortgage problems and the banks refusing to lend each other money, this is become normal business practice for the credit card companies. Not only are they closing inactive accounts, but if you do have debt, they are lowering your credit limit to that amount which significantly hurts your FICO score. They know that there are so many homes in foreclosure and that many of those people will not be able to pay back CC debt, so they are trying to mitigate their damages while they can. A month ago, Suze Orman said she talked to Fair Issac… Read more »
Pay cash or do without. Then, tell the credit reporting agencies exactly where they can put your “credit score.”
This happened to me recently as well. Called to cancel a card that I no longer use only to find out it had been closed for me 3 months earlier. Got a letter in the mail from another card stating that because I had not made a purchase on it in the last 12 months, it was canceled for me. Why so many cards? I used them to get money or % off an item for initial purchase, or to take advantage of 3-12 months 0% interest. I couldn’t care less, I don’t plan on buying a home or financing… Read more »
This happened to me a few months ago. I called to ask if I could have it reopened but they said no. I wasn’t upset enough to pursue the issue, but I was kinda mad they would just up and close it for seemingly no reason.
I know they weren’t making money off of me but if it’s profit they are after then they should just start charging an annual fee to inactive accounts. Let those who refuse to pay the fee close the account themselves.
The issue here is that I (and I assume others out there) hang on to their first credit card just to increase their length of credit. If that one was to go, I’d lose about six years to said length. Old cards also boost our amount of total credit. With respects to FICO scores, what happens when the card company closes your account versus you closing it yourself?
I’m with Trevor. I actually hope I get this kind of a letter because I have a small stack of cards that I need to cancel, and keep putting off dealing with them. Most are department store ones, though. I did just get a new card for one of my oldest accounts and I never activated the LAST one they sent. It’s in that pile I mentioned. So apparently BOA is not doing this, at least not to me. Of course when I opened that acct it wasn’t BOA, but with the way the banks changed hands over the years,… Read more »
Why should the business worry about what’s best for you? If it were in your best interest to cancel the card would you worry about how good it is for the credit company? We all act in our best interest. The only question to me is if the behavior is ethical and moral, and I see no problems with either. In fact as a CC customer I would consider it a feature if I were sent a statement saying “If this account is not used for 12 months the account will be frozen FOR YOUR PROTECTION”. I have had a… Read more »
i have several credit cards that i use and i always pay on time.
yet 2 banks close my accounts this month and i lost over 40k of credit on 2 cards.
so make sure you rotate and use your card at least once a month.
I wonder if my Discover Card will be cancelled. I haven’t used it in 8 years. It’s my oldest credit card. Do people still take Discover? Ha.
Last year I focused on raising my credit scores for both myself and my husband so we could buy a house – I focused more on his than mine because I knew they would be considering his income more than mine (we ended up just going with his anyway). So my focus since then has been less about credit score than it is about overall debt reduction. HOWEVER, if I got a letter today that one of the companies was canceling the card that I had paid off a while ago for my husband I would be very upset. Because… Read more »
I have a store credit card with a company (Mervyns) that has gone bankrupt. Their Web site no longer recognizes my user ID, so I can’t access my account to see if the account is still open. What generally happens when a store goes bankrupt — are credit card accounts automatically closed? Will this type of scenario still affect my credit score?
Chris’s response was bang on. Loyalty to a company means USING their product, not keeping an open account with them that they have to pay someone to monitor simply so your FICO score gets a boost. Pick a utility bill that’s the same amount every month – like the cable. Have the utility auto bill to your old credit card, and set up an auto payment to the card from your bank account. Voila. Problem solved. But in the grand scheme of things, losing a bit of length is not going to be that big a problem. Car companies rely… Read more »
Hi, I’ve always thought that the idea of keeping an unused credit account open a silly idea. And the idea that it “hurts” your credit score even more ridiculous. If you have an unused credit account available to you, and you apply for a loan (auto, home, etc.) it’s just as likely they’ll refuse your application on the grounds that your existing debt/income ratio is too high. Back before the days of subprime and Alt-A, CDOs, etc. it was more advisable to close unused accounts for this very reason. These days, we’re told, “Oh no, don’t close them, you’ll hurt… Read more »
Ryan @ #3 – Right on! I’ve never understood the obsession with credit scores. I own a home and have refinanced once and I have never, ever known my credit score. I could, however, tell you to the penny how much we have in savings.
Funny thing, this happenend to me last week, both Bank of America and Amex closed two ccs i hadn’t used in over a year.
I heard they are also paying people to close their HELOC.
Hmmm….yeah..that is a good point. I haven’t thought of it that way before. If it costs money for them to keep your account open and you are not using it – or not paying annual fees, then I can see how they would want to either get you to close them or start using them. It makes sense. They need to focus on the customers that actually use the card. When I was self employed, if I had a client that had signed a contract, but never sent me any business for a year, but it costs me money just… Read more »
“Credit can have an appropriate place in onces financial life.”
Absolutely agreed! I never said “Don’t have credit”. I merely said it’s better to not have things laying around you don’t use. You’re too likely to forget you have them, and you’ll likely be reminded at a most in-opportune time. For example, when someone steals your identity and charges something on that account! 🙂
I have plenty of credit, but I use it often, and responsibly!
There’s good and bad uses of credit. Do what’s right for you 🙂
pll
It’s probably about time that this happens. It seems like this decision will help reduce credit card theft, etc.
“Absolutely agreed! I never said “Don’t have credit”. I merely said it’s better to not have things laying around you don’t use. You’re too likely to forget you have them, and you’ll likely be reminded at a most in-opportune time. For example, when someone steals your identity and charges something on that account”
Point taken! I think I read your post too fast….this is what I get for trying to multitask on a Tuesday! =)
3 cc’s closed in the last couple months. Sent unrequested and went unused. Sorry we didn’t jump through your hoops, big business. Have you read about the rate jumps they’re hitting people with who have a chunk of debt? They’re Sharks and if you haven’t been bit your lucky. I was just going to not use the couple of store cc’s I have and let them close them, but I’m inspired to call now and tell them just why I’ll never use a cc again. Hopefully FICO will go the way of the Dinosaurs and cash and work history will… Read more »
So…I get a come on from a card I haven’t used, a good 0% balance transfer offer. Times being what they are, the one balance we are still holding hasn’t yet been paid off, so I take the balance transfer offer…the transfer goes through…then the transfer is denied…I get charged a $39 fee [from EACH company-$78 total]…I call the credit card company that offered the transfer deal & am told that my account was closed due to non-use. After I receive & use a balance transfer offer. Didn’t I get a mailing to that effect? (No). Fees are reversed, CC… Read more »
JD, thanks for highlighting those two comments. This has been my feeling since I first followed Suze’s orders and paid to figure out my credit score. I can think of two reasons why I would want an extra super special shiny credit score: car loan and home loan. Both a pretty far off for me. I know my score is in the mid-700s. I pull my credit report (for free) to check for accuracy but that’s it. I refuse to stress about my score. I think the score gets overblown because it’s validly important for folks in debt with low… Read more »
I am angry that the actions of the credit card company, not provoked by me, can hurt my credit score. That’s what should be called a rigged game and it should be banned. I am glad to hear it’s not that much of a bump downward. We’ve had a couple of accounts closed on us. I’m refusing to pay the credit score game. It’s not fair, but I refuse to engage. We have one credit card that we use and that’s it. I have no interest in using three different cards and remembering to pay them off diligently. Why the… Read more »
This is a good thing. Our economy is suffering because the credit bubble finally burst. The best way to dig out of this mess is for credit to tighten and for people to return to saving instead of spending.
Exactly like #14, I got a letter from Chase closing a card I had since it was unused for 24 months. Suits me fine. I am pretty sure I had asked them to close it a while ago since I didn’t need it but they left it open and I never followed up.
Jim
Surely the negative impact on your credit score of a closed account (if there is one), is by far outweighed by the benefit of not having the credit available? In Australia when you apply for any loan (including a mortgage) they take into account all credit lines open to you, as there is a potential liability there. Doesn’t matter if you never carry a balance, if you have a $15K limit on your card they are going to assume you WILL run up $15K of debt. Also, CC companies call customers who pay their bills off in full each month… Read more »
I didn’t find out Capitol One had closed my account until I called to activate the replacement card they sent me.
Yeah, it didn’t make any sense to me either.
It’s me again, from #3. The only reason I know my credit score is because we bought a home recently. Mine was 796, my wife’s was just over 800. We only use one credit card normally (and obviously pay it off every month). However, she uses the Victoria Secret card because they send her coupons for free stuff, and of course pays that off each time too. When I was younger and more foolish (before my “conversion”) I took the Bose credit card for 6 months 0% so I could buy the $500 Wave system–still have it, still love it,… Read more »