If your credit is good and you pay your bills on time, you might assume that your credit card company will always want your business. But because credit cards aren’t as profitable as they once were, your card issuer might decide it’s less expensive to fire you.
Accounts may be closed suddenly and without warning by the credit card issuer. This can happen for various reasons, such as if you haven’t used the card in a while or have violated the card agreement. There are still more factors, and they can all work together to reduce the financial risk the credit card company is exposed to.
Reasons why Credit Card Companies Close Accounts Without Warning
A credit card company might close your account without informing you for the following more frequent causes:
Your card is no longer being used:
Accounts with inactive status are frequently closed by credit card issuers. Unfortunately, there isn’t a set amount of usage per month that you must meet to keep your card active, instead, it can differ from issuer to issuer. This can be avoided by paying a small recurring bill with an account and paying it off right away.
The card is no longer available:
Now and then, credit card companies stop offering some cards. Depending on the circumstances, you might still be able to use your card even though it’s no longer accepting new applications, or you might be given an alternative card. However, the card issuer might simply close the account in some circumstances.
Your credit rating significantly declined:
Credit card issuers perform routine credit checks on them, to ensure that current account holders are still responsibly managing all of their debts. If you’ve missed payouts on other accounts, your credit score might have fallen below the cardholder’s least credit score requirement if you’ve missed payments on other accounts.
Your credit limit has consistently been exceeded:
The credit card company may think you can’t handle your debts well if you frequently go over your credit limit. If you do it once or twice, it probably won’t be a problem, but if you consistently go over your credit limit, it might lead to account closure.
What affects your credit when you close a credit card account
Even if you didn’t use the account often, it could have a significant negative impact on your credit.
Credit Utilization
Closure of an account is one of the most significant ways it can impact your credit by raising your credit utilization rate. Your credit score is influenced by your credit utilization, which shows how much of your available credit you are using at any given time. If you cancel a card, you no longer have access to the available credit, and if you have outstanding balances on other cards, your credit utilization rate will rise.
Good payment history
The positive history of a credit card account that has been on your credit report for a while and is in good standing can raise your score. Even though it will remain on your credit history for up to 10 years if the account is closed while it was in good condition, it won’t have the same impact as an open account.
Furthermore, if the account is closed, there won’t be any more timely payments added to it, which could restrict your efforts to raise your credit score especially if it’s one of the limited accounts you have in your name.
Conclusion
Nowadays, it’s simple and common to have a credit card, but very few people are capable of managing their credit cards. To avoid facing a situation where a merchant might refuse your credit card, you should be conscious of all the terms and conditions of your credit card and ensure that transactions are enabled or disabled per your needs. Additionally, one of the most crucial things to remember when using a credit card is to use your credit limit lightly and not go over it. It won’t just cause you problems; it will also harm your credit score. Therefore, to ensure that your transactions go smoothly when using your credit card, keep checking for all the factors mentioned before making any purchases.