Ellen B. Kennedy
Has your credit card closed? Even those with good-to-great credit face hurdles at times, particularly if you forget about a card collecting proverbial dust in your wallet. Credit card issuers can close your account due to what's known as "inactivity," meaning you haven’t used the card in a certain amount of time — let's say a year or more — and the issuer now assumes you have no use for that account.
A canceled credit card may lower a good credit score for several reasons. Here's what you need to know about closed accounts.
Why your credit card closed
There are several reasons why your card may have closed.
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Your card is inactive.
If you haven't used your card for several months, your credit card issuer may close your account for inactivity. If you aren't using the card, the issuer isn't making any money from "swipe fees" — or the fees it charges merchants when you make a purchase with your card. Try to make at least one purchase a month on each card to avoid this type of credit card closure.
If you're not sure how to use credit cards to your own advantage, read up on how credit cards work.
You haven't paid your bill.
Your credit card company expects you to pay at least the minimum payment due each month (though paying in full is always the best practice for protecting your credit and avoiding fees). If you fail to make any payments for 180 days, your card will be considered in default and will likely be closed. You should avoid this at all costs because it will decimate your credit score. Your credit card company will probably sell your debt to a collections agency.
You make charges over your credit limit.
If you habitually exceed your credit limit, the issuer may conclude that you are a poor credit risk and close your account. This scenario is most likely with charge cards, like the American Express Green, Gold and Platinum cards, which require you to pay your bill in full each month.
Other reasons your credit card may close.
If your credit score drops precipitously or the issuer discontinues the card, your account may also be closed.
How a closed credit card affects you
Your credit utilization ratio may increase.
Closed credit card accounts can negatively impact your credit score for several reasons. When an account is canceled, it decreases the amount of available credit and raises your credit utilization ratio — the amount you owe as a percentage of your total available credit. Having a high credit utilization ratio can decrease your overall credit score. Additionally, a closed credit card can sometimes impact the length of your credit history, as well as affect your mix of credit.
Your credit report has a long memory.
Closed credit accounts stay on your credit report for up to 10 years. If you had missed payments on the account before it was closed, those missteps remain on the account for seven years.
Next steps.
Even if an account is closed, all is not lost. You may be able to remedy the situation. Card issuers don’t generally want to close your account because it’s hard to find and keep a good customer, says credit expert John Ulzheimer, author of The Smart Consumer’s Guide to Good Credit. That is why it's a good idea to use cards you want to keep just often enough to keep them active. You could use the card to automatically pay a recurring bill, such as your gym membership or a subscription.
Pay the entire balance when the bill comes in to avoid triggering interest charges. Or shop around for a card with a lower rate, a cash back credit card or another reward program that’s better suited to your spending habits.
Can you reopen a closed credit card?
There's no guarantee your credit card issuer will reopen your account. However, you have the highest odds of account reinstatement if you asked for the closure or the credit card company closed it due to inactivity. On the other hand, reinstatement is unlikely if the card issuer closed the account due to missed payments, default, or suspicious activity.
If you want your account back, you need to act fast. Typically, you must contact the credit card company within 30-60 days of closure to request reinstatement.
How to boost your credit score after credit card closed
As mentioned above, when an account is closed, the amount of available credit decreases, which impacts your credit utilization ratio. This ratio accounts for 30% of your credit score. Keeping your balances around 30% or less of your available credit is best. By keeping a credit card open (even if you barely use it), you'll increase the amount of credit available and raise your credit score.
If your card was closed and your credit score took a hit, reinstating your old credit card or applying for a new one is just one of the ways you can increase your score. And if your score has tumbled, you could consider a credit card for bad credit.
Remember that a good credit score is based in part on the longevity of your credit card accounts, where the older the credit card account, the better your score. So, if you've had a card for many years that has closed or is about to close, do your best to hang onto it. If you don't like the card's annual fee, you can ask the issuer to swap out the original card for one without the annual fee, while keeping your card history.
Will I get notice my credit card is closing?
No, your credit card issuer will not likely tell you if it plans to close your account. However, you should receive an alert if you’ve signed up with a credit-monitoring service. If that happens, call your issuer right away to see how to get your card reinstated.
The issuer may restore your account with the previous terms or request that you reapply for the card. If you lost rewards points or miles because of the closure, ask if those can be reinstated — although the issuer is not obligated to do so. If your card is restored with a lower credit limit, wait six months and then ask for an increase.
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