Credit Card Closed? Here's Why and What to Do Next

A man looking confused at his laptop holding a credit card — (Image credit: Getty Images)

Has your credit card account been 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 might lower a good credit score for several reasons. Here's what you need to know about closed accounts.

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Why your credit card closed

There are several reasons why your account might have been closed.

Your card is inactive.

If you haven't used your card for several months, your credit card issuer might close your account for inactivity.

Policies vary by issuer. Some banks might close a card after just six months of no activity, while others might wait 12 to 24 months. Card issuers are not required to give you advance notice, though you might occasionally see a warning in a statement or email.

If you aren't using the card, the issuer isn't making money from "swipe fees," 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 might conclude that you're a poor credit risk and close your account. This scenario is most likely with charge cards, which require you to pay your bill in full each month.

Other reasons your credit card account might be closed.

If your credit score drops precipitously or the issuer discontinues the card, your account might also be closed.

It's important to note, if your account has unredeemed rewards when it’s closed, you’ll likely lose them. If you still carry a balance, the account typically converts to repayment-only — you’ll need to pay it off in full, but you won’t be able to make new purchases.

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 might be able to remedy the situation.

Card issuers don’t generally want to close an 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's 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 off the entire balance 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 to 60 days of closure to request reinstatement.

How to boost your credit score after card account is 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 card or applying for a new one are two ways you can increase your score. If your score has tumbled, you could consider a credit card for bad credit.

A good credit score is based in part on the longevity of your credit card accounts; the older the credit card account, the better your score.

If a card you've had for many years has closed or is about to close, do your best to hang onto it. If you don't like the card's annual fee, ask the issuer to swap out the original card for one without the annual fee to keep your card history.

Will I get notice that 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.

Under the CARD Act of 2009, issuers must give you 45 days’ notice before making significant changes to your account terms, such as raising fees or interest rates. But they're not obligated to warn you before closing an account for inactivity or other reasons.

The issuer might restore your account with the previous terms or request that you re-apply 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, then ask for an increase.

Rivan joined Kiplinger on Leap Day 2016 as a reporter for Kiplinger's Personal Finance magazine. A Michigan native, she graduated from the University of Michigan in 2014 and from there freelanced as a local copy editor and proofreader, and served as a research assistant to a local Detroit journalist. Her work has been featured in the Ann Arbor Observer and Sage Business Researcher. She is currently assistant editor, personal finance at The Washington Post.

With contributions from