Dumped by your card issuer? 5 tips to survive the breakup
Breaking up is hard to do. It's especially tough if you don't see it coming.
"When a creditor closes an account, they are doing so for probably one of three reasons," says Cate Williams, vice president of financial literacy at Money Management International in Houston, a national chain of nonprofit credit counselors. The three are:
- The account is inactive and there is no balance.
- The account has terms that the creditor no longer wants to offer.
- The card is closed for an undisclosed reason.
Dumped? 5 steps
What should you do if you suddenly find yourself dumped? Here are five steps to take when your credit card issuer "just isn't into you" anymore.
1. Get a copy of your credit report
Ron Griffin, director of public education at Experian, says your first step is to check your credit report to see if your account is being reported accurately. "It should be reported as 'closed.' Alternatively, it may say 'closed at lender's request.' This is also accurate and not a cause for concern. Which party closed the account has no bearing on a credit report or score," says Griffin. At this stage, you just want to make sure that your credit report accurately reflects your newly closed account.
Your account could be closed due to one of the three reasons cited above or it could be due to a unique situation that flagged your account. So call your credit card issuer and ask for an explanation. This is what Srini Vasan, CEO of gauto.com, an auto detailing company in Scottsdale, Ariz., did when his 12-year relationship with American Express ended unexpectedly. Vasan had always paid his bills on time and was shocked when his card was canceled.
"I had a number of conversations with American Express explaining our situation. But they kept going back to the 'standard indicators' that they use, which was that there were too many inquiries in the last few months," says Vasan. The reason for the inquiries was that Vasan had refinanced his home and had qualified for a home equity loan.
"I basically laid out our income and expense situation, and they still didn't get it," says Vasan. So even though Vasan had never missed a payment, the increased level of credit inquiries showed up in his credit report and spooked the issuer.
It's possible that a conversation can restore your account with the issuer. "If your credit history is good, and you have some history with them, they might understand and work with you," says Alan Lysaght, co-author of "The ABCs of Making Money."
But it's also possible that the decision will stand even if you, like Vasan, show you're a good customer who can pay your bills. As a result of the recession and oncoming federal regulations, card issuers have sharply tightened credit, even on good customers. Still, make the call so you know what the reasons were behind the decision. Just don't expect to be welcomed back with open arms.
3. Don't panic and close more accounts
It's a common misconception that closing credit card accounts will improve your score. People often panic and think that they'll look creditworthy again if they have fewer cards. But this isn't the case. Part of your credit score is determined by the ratio of your credit card balances to the total amount of your credit limits.
"When an account is closed, the credit limit associated with that particular account is no longer available," says Griffin. "Therefore, the consumer's overall available credit limit declines, causing their usage percentage to increase. An increase in usage percentage can indicate a credit risk, resulting in a temporary decrease in score."
4. Assess your financial situation
For some, getting dumped is a wake-up call. Let's say you're in a situation where you have opened up numerous new accounts -- not to remodel your home, but just to make ends meet. Or maybe you have actually made a few late payments.
With defaults in the United States continuing to rise, issuers are becoming more risk-averse. If you give them a reason to doubt your ability to pay your balance, you might get cut off. Take steps to stick to a budget and live within your means. "Determine what expenses you can cut back on and redirect that money to paying down your debts and repairing your credit score. If you do this, you'll eventually re-establish good credit and be eligible for another card," says Lysaght.
Your score may go down in the month that the account is closed, but the score will begin to rebuild over the next months as you make regular on-time payments.
|-- Cate Williams
Money Management International
5. Concentrate on boosting your credit score
When your account is closed by the issuer, it usually has a small negative impact on your credit score. "Credit scores usually bounce back up in a matter of a billing cycle or two because it becomes clear that the consumer isn't suddenly racking up credit card charges," says Griffin.
If you fall into the category of those who lost their cards even though their finances were in good order, then the best you can do at this point is to pay your credit card bills on time and move on.
"Your score may go down in the month that the account is closed, but the score will begin to rebuild over the next months as you make regular on-time payments," says Williams.
See related: How to react to a rate-jack attack, Good credit history doesn't go away when card is canceled, Canceling an old card with a bad history isn't always smart, 7 times when it's OK to cancel a card, Canceling a credit card and your credit score
- Go paperless without neglecting your card bills – Help the environment, save money - but stay on top of your finances. Here's how ...
- How financial well-being and physical health are linked – The amount of credit card debt you’re coping with can affect your physical health ...
- Pros, cons of using credit cards for everyday purchases – Using a credit card for all your purchases has its upsides, as long as you aren't adding to your debt load ...