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What to do if your credit card is closed due to delinquency

A credit card closure and a delinquency are two things that hurt your credit score. Here's how you can recover from the impact of both

Summary

If your credit card is closed due to a delinquency, it will likely have a dramatic negative effect on your credit score. Contact your issuers or a credit counselor for help, and take steps to improve your credit.

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There are a lot of reasons why having a credit card closed is not a good thing.

However, having the card closed because the account became delinquent is probably one of the worst things, at least as far as your credit score is concerned. Let’s look further at delinquency and see how it happens, how it does affect your score and how to recover.

Check out all the answers from our credit card experts.

Ask Steve a question.

What is credit card delinquency?

Delinquency is the failure to pay the minimum payment required on your monthly statement by the due date. This is what is meant by “pay as agreed.” When you got your credit card, you received an agreement with all the card terms enumerated. Most of us don’t bother to read this sophisticated example of fine printing. I said “most” because as you may have guessed … I do.

Next time you get one, check it out. It not only has your contractual terms but also a nice list of benefits you may get with your card that you’ve overlooked. For example, it may offer a warranty extension of a year on purchases. As everyone knows, equipment breaks only after the warranty expires, so this feature has saved me big time over the years.

The issuer also included language agreeing to extend you a certain line of credit and you agreed to make regular required payments. If you fail to do so, you enter into a delinquent state. No matter what happens next, you will owe them the money, plus further insults to your pocketbook in the form of high interest, fees and penalties.

See related: How much do credit card issuers charge if you pay late?

Can your credit card be closed due to delinquency?

In a word, yes. However, this usually will not happen until you have missed four payments. This means your account is 120 days past due. During that time, your lender will most certainly have contacted you.

Sometimes things fall through the cracks and lenders know this. Maybe you just forgot. Or maybe you are going through a rough patch; if that is the case, your lender will almost certainly want to help. That’s mainly because it doesn’t want to lose a customer.

Most have hardship programs that will lower your required monthly payment. But you generally have to ask for one. You should know that these programs are not long-term – they’re usually in the three-to-six-month range. But it is certainly worthwhile to investigate those options before you become delinquent to the point that the lender feels it must close the account.

The earlier you do this, the more options you may have available. Once the card is closed, you lose access to it for purchases, but you are still on the hook for the balance on the account.

Can you get the card reopened?

You may be able to reopen your closed account once the balance has been paid, but that is a decision for the card issuer to make. While this could happen, the more likely scenario is that you will have to reapply for a new account with the issuer.

See related: Why is my credit card account under review?

How does a delinquency affect your credit score?

A serious delinquency can be devastating to your credit score. Remember, your payment history is the No. 1 factor in the FICO score matrix. If you are able to catch up, you will likely have to pay a late fee, but chances are your issuer will not report that first delinquency to the credit bureaus.

However, if you get to the point of having the card closed, you will be reported and it will be from the date of the first continuous delinquency. Things can go from bad to worse here if you do nothing and the card issuer chooses to charge off the account. Charge-offs are especially damaging to your credit score and will remain on your credit report for seven long years.

It is also important to know that if the card is closed, you will lose more points from your score due to the loss of available credit. The negative impact caused by a default and the card closing is significant.

The closing will affect your credit utilization ratio. With less credit available as a result of the account closing, the ratio of money owed relative to credit available will rise and that’s bad for scoring. Credit utilization is worth 30% of your score and is second only to payment history in importance to your FICO score.

Yes, your payment history, worth 35% of your FICO score, will also take damage as a result of all those delinquent payment entries piling up on your credit report. If you are able to catch up and you reapply to get the card reopened, your score will suffer another (small) hit due to the new credit inquiry.

The bottom line is that a delinquency is bad news all the way around when it comes to your credit score.

How can you improve your credit after a delinquency?

Fear not, there is light at the end of this long, dark tunnel. Be warned that it will take time, though. The number one thing to do, even while you may still be in the midst of paying off the delinquency, is to pay all of your other bills as agreed. Try to keep your utilization on any other credit cards you have at or below 25% at all times. Don’t open new credit unless you need to.

There are also some programs that allow nontraditional data to count in your scoring that might help your score:

  • Experian Boost: While this will only have an impact on your Experian-generated score, you may be able to pick up some valuable points by nontraditional data added to your credit report. Boost enables you to have positive payment history from utilities, cable and cellphones added to your credit report. The effects are especially pronounced if you have what is known as a “thin file,” or one with limited data.
  • UltraFICO: This program from FICO looks at your banking information instead of the traditional scoring factors. If you are a saver and have used your checking responsibly, it can give you extra points for a good record.
  • Rent payment reporting: Lastly, if you are a renter you might inquire if your landlord reports your payments to the three major credit bureaus. Some large ones do. If yours does not, you can look into using a rent-paying service that acts as a middleman between you and your landlord and sends your payment data to the bureaus.

Consider credit counseling

I mentioned hardship programs from the creditors earlier. If you find that the relief they are offering is not enough, I suggest a call to a nonprofit credit counseling agency. I would suggest a call to one even if you are contemplating utilizing the issuer’s program. You may find the terms of a debt management plan (DMP) from a certified agency more beneficial.

Unlike a short-term plan, a DMP is a systematic approach to paying off debt with reduced interest rates, waived fees and possible account re-aging that can spread your payments out over as long as five years. And that can be completed in a shorter period of time if your resources improve.

While your accounts will be closed in a DMP (which might hurt your score somewhat from a utilization standpoint), you will be making regular payments (which will help you a lot). I recommend using one of the members of the National Foundation for Credit Counseling if you choose this route.

Remember to keep track of your score!

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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