Just as you can cancel your credit card any time you no longer want or need it, your credit card issuer also has the right to cancel your credit card at any time. You may not even get a warning when your credit card is canceled and inconveniently learn your card has been canceled after having a transaction declined. Here are a few reasons a credit card issuer may cancel a credit card.
You Stopped Using the Card
Unused credit cards aren't profitable for credit card issuers. And card issuers aren't allowed to charge a dormancy or inactivity fee to cardholders who don't use their credit cards for several months. Sometimes closing a credit card is the better option for credit card issuers.
There's no standard timeframe for credit card issuers to cancel unused credit cards. To be on the safe side, use all your credit cards every three or four months to keep them open and active. Setting up a recurring payment, like a streaming service can be an effortless way to keep your credit card open. Just make be sure to make your payment every month.
You Stopped Making Payments
If you have an outstanding balance, the terms of your credit card require you to make regular minimum payments. While your credit card probably won't be cancelled after just one missed payment, a more serious delinquency can lead to a strained relationship with your credit card issuer.
Some credit card issuers will suspend your charging privileges if you're 60 or 90 days past due and let you start charging again once you bring your account current. However, your credit card will be charged-off and closed completely after 180 days or six months of non-payment.
Your Credit Score Dropped
While creditors can't increase your interest rate because of late payments on other accounts (unless the account is with that same credit card issuer), they can close your account completely if you appear at risk of defaulting. If your credit score starts slipping because you're falling behind on your payments, your credit card issuers might start closing your credit cards.
You Rejected a Rate Increase or Other Change
Before a credit card issuer can make a pricing change to your credit card, like raising a fixed interest rate or annual fee, they must give you a 45-day advance notice. During that time period, you can reject the new credit card terms and choose to pay off your account under the old terms. However, many credit card issuers close your account if you decide to reject the new terms.
A rate increase will only apply to new transactions. If you want to keep your credit card, you can pay off your old balance under the existing rate. Then, pay any new purchases in full going forward to avoid paying finance charges under the higher interest rate.
The Credit Card Issuer Is Getting Rid of the Credit Card
Credit card issuers continuously review their credit card portfolio and get rid of credit cards that no longer fit. In this case, your credit card issuer will likely send advance notice before closing your credit card and let you know your options. You may be able to transfer your account to another credit card with the same credit card issuer.
The Bank Is Closing
Unfortunately, some credit card issuers are forced to shut down operations when they are no longer profitable. Many credit card issuers sell their credit card accounts to a new credit card issuer. The new card issuer may close the credit card and require you to apply for a new account if you want to do business with them.
What It Means to Have Your Credit Card Cancelled
A canceled credit card seldom has a good outcome. Your credit score may drop, especially if the credit card still has a balance, because it raises your credit utilization. The good news is that your credit score can improve over time as you reduce your credit card balances.
If your credit card is cancelled, you're still responsible for making at least the minimum payment until your balance is completely repaid.
Frequently Asked Questions (FAQs)
When should I cancel my old credit cards?
Rather than canceling an old credit card, you might want to keep it open and unused. You can't predict exactly how a cancelation will impact your credit score, but it probably won't have a positive effect. However, it might make sense to cancel one of your credit cards if you can't resist the temptation to spend, or if you otherwise struggle to manage your credit.
How do you cancel a credit card without hurting your credit score?
All else equal, canceling a credit card will always hurt your credit score, because it reduces your average age of credit and increases your credit utilization ratio. To limit the harm to your credit score, look to offset those negative marks. Cancel the newest card with the lowest credit limit. If you can, make extra payments toward other debts to improve your credit utilization ratio.