As debt collection attorneys, we are often faced with debtors that have had cancelled credit cards.   We are often asked, why, and more intuitively, what next to protect from the credit damage that closed accounts can cause.   Below we review the 3 main reasons for credit card cancellations, and what actions you should take next to minimize the credit damage.

Credit Collection Credit Card Cancellation

1.  You didn’t pay your credit card!

The obvious, don’t pay your credit card bill, loose your credit card.   Our experience is that credit card issuers generally don’t cancel your account until you are around 180 days past due.

What typically happens once your card is closed, is your debt is sold to a debt buyer, a company that specializes in buying bad debt at a discount.   Your credit at this stage has likely taken a major beating as a result of not paying your credit card bill, and as a result of the credit grantor cancelling your account.  This black mark in all likelihood will stay on your credit report for 7 years.  In the process, you will most likely also loose any rewards points that had been built up.

 

The only way to recover from here, is to not  be here in the first place.  Even if it is only the minimum payments, be sure to make your payments.  If there is a reason that you cannot make payments, be sure to call the card issuer, and not just wait for the inevitable collections action.

 

2.  You didn’t use your credit card!

Your credit card issuer makes money on every transaction that you make, not just in the fees and interest they bill you, but in fees that are paid by the people that accept your credit card as payment.  Credit Card issuers get paid from both sides of the transaction.   It is quite possible that a credit card company will cancel your credit card, even if there is no balance, because they aren’t making money from transactions.

If you made payments regularly on the card, and had it arbitrarily cancelled for non-use by the card provider, you can expect 2 credit impacts.  The first is that you will cary your good payment history for 10 years on your credit report.  The second, because your available credit goes down with the cancellation, your credit rating may take a hit as well.   What happens is when one card is closed, and your utilization of all your other cards remains the same, the percentages shift, and your credit utilization goes up, this puts negative pressure on your score.

To avoid the potential negative effects of your card being cancelled, even if you make all your payments, be sure to make at least one purchase a month to keep the card active.  Many will recommend putting your credit cards into deep storage, and never use them.  We would advocate, in the interest of maintaining credit rating buoyancy, continuing to be disciplined but continuing to keep at least a minimum of baseline activity on all of your credit cards.

 

3.  Something Changed!

Changes in your credit position, or changes unrelated to you, but impacting the credit card issuer can cause accounts to be cancelled.   If you are making your payments to card A with incredible discipline, but cards B and C are delinquent, that delinquency can cause a drop in your credit score, and Credit Card A can drop you.

Your credit card issuer might phase out a certain offer or card, and your account along with it.

Some of this is beyond your control.  If the card issuer changes a policy, and you are left behind, and your account cancelled, your credit rating can still take an indirect hit due to your overall credit card utilization percentages being impacted.   It could be you are current everywhere, but due to fraud and identity theft, your credit has changed.  It is imperative that you keep a close eye on your credit reports so that you can identify changes in your credit worthiness and credit score early, and react to them appropriately.

The better a credit card customer you are (on time payments, active usage, etc.) the less likely your card is to be cancelled as a result of changes in the card issuers policies.

Protecting your Credit

The bottom line is, your card being closed will most likely negatively impact your credit rating, even if the card is not closed due to delinquency.  It is incredibly important that you be a good steward of your credit, and a good customer of your credit providers, while at the same time monitoring your credit on any of a number of credit score providers.

Actively managing your credit will save you money in the long run.  Managing your life’s credit should be an engaged activity, not a passive one.

 

 

 

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