When can an issuer close your credit card account?
Even if you're not in default, an issuer can boot you at any time
By Susan Lahey
you've experienced this before: You get to the cash register, pull out your
credit card, swipe it and are told it's declined. You try again. Same
result. So you call the issuer and find out the account has been closed, despite
the fact that you've never been late with a payment. "What even?"
you're confused, you're not alone. This kind of thing happens -- and it's
regulations do nothing to help in this situation. The Credit CARD Act of 2009 helped
to increase protection against interest rate hikes and overlimit fees. But credit
cancellation policies remain largely unchanged.
the current act has done lots of great things for consumers, one of the areas
where it has not been of help is in closing accounts or reducing credit lines,"
says Ruth Susswein, deputy director of national priorities for Consumer Action
in Washington, D.C. "The card companies are still in complete control of how
much of a credit line consumers have and how long they get to keep it."
Why would they do that?
course, an issuer can cancel your card if you fail to uphold your end of the
bargain. Paying late (or not at all), going over your credit limit, failing to comply
with your agreement or filing for bankruptcy are all legitimate grounds for
closing an account.
the reasons can be much less obvious than that. Credit card issuers are watching
your credit record, and if anything there makes them feel that their credit
portfolios are less secure than they'd like, they may suddenly pull the plug.
O. Conway, vice president of public affairs and communications at American Express said in an email that the company monitors cardholder credit behavior
on an ongoing basis. "We look at a variety of elements, including their spending
and payment history with American Express, their debt/spending/payment history
with other lenders, credit bureau scores and other credit report information,"
If AmEx doesn't like
what it sees, it may lower your spending limit or cancel your account. "Our
intent is to strike the right balance between accommodating our card members'
spending needs, while also prudently managing credit risk -- for us and for our
card members," Conway wrote.
Chase follows a similar policy. The company declined a requested interview for this
story. But the Chase Freedom credit card agreement says one of the reasons your
account may be considered in default is if the company believes you "may
be unwilling or unable to pay your debts on time."
if you're not in default, an issuer can boot you at any time. The most common
reason is that you're not using the account often enough. From the issuer's
perspective, it's better to give that line of credit to someone who will use
the card frequently and rack up interest charges. "Sometimes we close
accounts based not on your actions or inactions, but on our business needs,"
the Chase Freedom agreement reads.
Legal challenge fails
Philadelphia, one consumer tried to battle a cancellation but found no relief. Paul Dieffenbach Jr.'s lawsuit against Citizens Bank was
dismissed from an
appeals court in February. Judges upheld the bank's right to cancel
Dieffenbach's card despite the fact that he had never missed a payment and never
asked for a line of credit increase.
no notice required for an obvious reason. They don't want you
to run out and rack up a big bill if they've determined you're not creditworthy
The bank said Dieffenbach didn't
score enough points in its system for evaluating accounts. Among the criteria the
bank based his scored on were, "payments this month as a percentage of the
amount due for last month, maximum balance as a percentage of credit limit in
the last three cycles, length of time the account has been opened and total
cash balance as a percentage of total balances in the latest three cycles."
Information Dieffenbach wasn't
likely to be tracking.
since canceling accounts is at the discretion of the card issuer, no laws or
regulations are violated when a bank does so.
No notice required
issuers don't have to warn you when they plan to cut off your credit, either. Rules
established under the CARD Act require creditors to provide written notice to
consumers 45 days before an interest rate increase or a "significant
change" to the account's terms. Diffenbach tried to argue that closure of his
account amounted to a just such a significant change. The court agreed with Citizens
Bank that it does not.
fact, according to the Equal
Credit Opportunity Act, creditors can close an account for delinquency,
inactivity or default with no notice whatsoever. If they close an account for
other reasons, such as an adverse credit report, they must notify the
cardholder within 30 days after taking
the adverse action. That doesn't do much good when you're trying to pay for
your meal with a card that's unexpectedly declined.
no notice required for an obvious reason," Susswein says. "They don't want you
to run out and rack up a big bill if they've determined you're not creditworthy
anymore. In practical terms, that can be
anywhere from a real drag to a real problem."
Credit score damage
cancellations can impact your credit score in a couple of ways, according to Anthony
Sprauve, director of public relations for FICO, the company that provides the most
widely used credit score for individuals. Sprauve says that credit card
companies provide a code for every account they close, denoting the reason the
card was canceled. A cancellation due to delinquency or default will ding your credit
score. Any other reason should not, Sprauve says.
will hurt your score, however, is the sudden change in credit utilization. Your
credit utilization ratio is the amount of credit you're using compared to how much you
have available. It accounts for 30 percent of your FICO score. If you're using only
25 percent of your available credit line, you're seen as a better credit risk
than someone who's maxing out their cards.
a big chunk of available credit through a card closure and suddenly your utilization
will go up if you are carrying balances on other cards -- and your score will go down. Sprauve recommends paying down your existing
debt to below 25 percent, or applying for new credit to once again reduce your credit
You're not powerless
just one step you can take if you suddenly have a card closed. There are other things
you can do to try to avoid closure. None of the following are sure-fire, since
each card issuer goes on a case-by-case basis with consumers, and the
parameters vary by bank. But they're worth considering:
at least the minimum balance each month on time. (This counts for 35 percent of
your credit score.)
periodic purchases, even if they're not large ones, to make sure the account
doesn't fall into the inactive file.
your credit score to ensure no inaccurate information has been attributed to
of Consumer Action recommends looking for cards you currently have or those you
want to apply for on Internet forums and databases to see whether people are
complaining about cards being canceled.
won't tell you if they're going to close your account," she says, "but it will
tell you if it happens enough that people are complaining about it." She also
recommends that consumers have two credit cards -- not necessarily more -- in
case there's a problem with one.
don't know how often it happens," Susswein says. "That's not something the
banks are likely to share. But I know it certainly ticks consumers off. It
comes as a shock."
See related: Can issuers close inactive credit card accounts without telling you?, Fees, interest charges still possible on closed credit card account,
Canceling a card can hurt your credit score
Published: April 5, 2013
If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.
Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!