Can issuers close inactive credit card accounts without telling you?

'Stealth card closure' can happen; here's what to do about it

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I've had a department store credit card for about 20 years, although I haven't used it for the last four years. I called the card issuer the other day to check on the status of my account, and I was told my account had been closed in December 2010 due to lack of activity on my part. I did not receive a letter stating this action was about to be taken. Can a card issuer do this? It's no great loss, since the card had a high APR and I hadn't used it in more than 4 years. -- Stevo Reno

So, clearly, you are not alone when it comes to stealth card closure. It happens a lot. Why? It may not be worth an issuer's while to keep you as a cardholder if you're not actually a charging customer.

To glean some insider insight, I contacted Macy's (which happens to be where I had my account) about this matter. This is what Beth Charlton, Macy's director of issue management and special projects, had to say regarding closing accounts that have become inactive:

1. Macy's doesn't technically "close" an account. But after a certain amount of inactivity, they do review your credit again, per their policy.
2. This is not considered an adverse action and therefore does not require a letter back to the customer.

The retailer with whom you had the credit card may not have the identical policy, but it's probably pretty close. You can find out with a phone call to the company's customer service line. While you're on the line, you may also be able to reopen the account, if that's what you want. 

As you pointed out, though, Stevo, there's no great tragedy in losing charging privileges with that card. Sure, some retailers' accounts offer special deals, but rewards credit cards that you can use anywhere are usually the better option because they are flexible and the benefits are stronger. Their interest rates also tend to be lower than their single-store cousins.

The only problem I can see with the issuer closing the account is what it can do to a credit rating. Having a card for a long time is favorable, so keeping older accounts alive is a good thing. Length of credit history comprises 15 percent of a FICO score -- not a huge factor, but not inconsequential either. Having a portion of your overall available credit shut down can also ding your credit, since that can knock your debt-to-credit-limit ratio -- another factor in credit scoring -- out of whack. But it doesn't sound like you had a balance, so this is an issue only if you had balances elsewhere. That it was shut by the creditor can be construed negatively by someone looking at the report, but that's usually a minor point.

Ultimately, I urge you look at the whole picture. If the rest of your credit report indicates that you're a responsible borrower, fabulous. Don't sweat the small stuff. Who cares if that store deemed you unfit for their card? Clearly there are plenty of other plastic fish in the sea.

Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.

Send your question to Erica.

Published: March 23, 2011

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