Preserving Your Credit: What to Do When Your Credit Card Issuer Closes Your Account
It's a common scenario in the world of credit cards - issuers deciding to close accounts. They do this for various reasons, often to mitigate their risk during economic uncertainties, or in response to your spending habits, or lack thereof.
You see, credit card companies thrive on every tap or swipe you make. Inactive cards, unfortunately, don't contribute to their profits. In fact, if you're not paying an annual fee and your card is gathering dust, you're essentially costing the card issuer money each month. As John Ulzheimer, a credit expert formerly with FICO and Equifax, points out, "You're below the zero revenue line, you're actually costing the card issuer money every month. Eventually, they're going to close your account because you're not generating any swipe-fee income."
The closure of your credit card account can have adverse effects on your credit score. However, if you're fortunate, the card issuer may send you a courtesy notice ahead of time, giving you a window of opportunity to take action and mitigate any negative impact on your credit rating. Nevertheless, if you don't act swiftly, it may take a while for your credit to bounce back.
1. Request a Reconsideration
Before your credit card account is officially shuttered, it's wise to call the customer service number on the back of your card and inquire whether the issuer is willing to reconsider their decision. There are no guarantees, but it's certainly worth a shot.
If the notice from the issuer contains the reason for the account closure, use it as ammunition in your case. For example, if the inactivity of the card is the issue, let them know your intention to start using it more regularly. A good tactic to ensure consistent use is to set up autopay for a recurring subscription.
2. Explore Alternatives
In some cases, negotiation isn't an option. Jake Dube, an engineer from Ohio, found himself in a situation where his credit card issuer changed the terms, presenting him with a choice: pay a monthly fee or have the account closed. He opted to close the account.
The closure of a credit card account affects the total available credit you're using, which, in turn, impacts your credit scores. According to Ulzheimer, the extent of the score impact can vary based on your credit card debt and the other credit cards listed on your credit report.
If your credit card issuer refuses to keep your account open, consider countering these effects by applying for a new credit card with a different issuer. Dube wasted no time getting a new card. "I applied for it the same day I closed the old one," he recalls. "They accepted it within 24 hours."
Be mindful that when you apply for a new credit card, the issuer usually conducts a hard inquiry on your credit, which can cause a temporary drop in your credit scores. However, with responsible card usage, including making on-time payments and ideally paying your balance in full each month, your scores will rebound.
3. Strategic Steps to Take
Consider the following steps:
- **Review Your Credit Score:** Check your credit score to determine the credit cards within your score range. You can often access a free credit score through your current credit card issuer or a third-party personal finance website. Research various credit cards and their qualifying credit score ranges to narrow down your options based on the likelihood of approval.
- **Use Issuer's Screening Options:** Conduct an online search for issuers that offer "pre-qualification" or "preapproval" and go through the screening process. This helps you gauge your chances of approval. Some issuers can review basic information about you through a "soft" credit check, which doesn't affect your credit scores. Only when you accept an offer and formally apply for a credit card will the issuer conduct a hard inquiry.
By narrowing down your options, you may discover that you qualify for more valuable credit card offers, especially if your credit score has improved.
"The new card I have comes with no fees and offers attractive cashback rewards," says Dube. "It's been a much better card overall."
4. Diversify Your Credit
If you currently have only one or two credit cards with low credit limits, consider opening additional credit cards with different issuers and using them sparingly. This strategy provides a safety net, as if one card is lost, stolen, or the issuer decides to close the account, you'll have at least one, if not two, backup cards.
Moreover, having another credit card can help minimize the impact on your credit if an issuer ever closes one of your accounts.
In summary, keeping your credit healthy when a credit card issuer closes your account requires swift action and careful consideration of your options. By following these steps, you can navigate this situation successfully and safeguard your credit rating.