Credit card companies are closing accounts for a number of reasons. One of the more obvious is delinquency. During the past few years, unemployment statistics soared to all time highs in many parts of the United States. The number of people losing their jobs became overwhelming and in just a few short months, many started struggling to meet their financial obligations.
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Credit card companies are also looking more closely at account activity or usage. Customers with open lines of credit with little to no transactions within a 12-month period are flagged. Depending the history, the account can be closed with no prior notification. This can cause embarrassment, confusion, and anger for the cardholder.
What laws affect my credit card company’s ability to close my account?
The current laws do not require the credit card companies to contact their customers before they cancel their accounts if they are delinquent or default on payments. The Equal Credit Opportunity Act (ECOA) states credit card companies must only disclose the reason for canceling an active account if they receive adverse information from the credit bureaus; they have 30 days.
The reality is, credit card companies are closing accounts because of risk. Whether your account is consistently past due or you just aren’t using it much; your risk group has changed and they will re-think your circumstances.
In the past, inactive and slow paying accounts were subjected to higher interest rates and additional fees. Credit card companies were able to recoup some financial losses through these measures. However, when the new credit card rules through the ECOA became effective on August 22, 2010; many of these options were eliminated.
The credit card companies are now being carefully monitored by the Federal Trade Commission to make sure they comply with the new rules. As a result, the credit card companies are closing any accounts they deem too risky; this can have major consequences for those who are impacted.
Will I have to pay my balance in full if my credit card company suddenly closes my account?
The answer is yes or no. You need to read your credit card holder agreement to find the true answer to that question. Some credit card companies will continue to send you a monthly statement if your account was closed for inactivity. They may provide you with the option of making partial payments or one lump sum payment. If you elect to pay monthly, be clear on your responsibilities.
Just because they allow you to pay your balance off over time, does not mean you will not be subjected to interest, even with the credit card reform laws in place. To be safe, after you read your credit card terms, check your information against the Credit CARD Act to confirm their compliance.
If your account was closed due to delinquency, your credit card company has the right to request the entire balance due upon receipt of the bill. Your options may be limited because you have shown a history of late or missed payments and the credit card company has already taken several monetary losses.
How badly will my credit score be impacted if my account is closed?
Depending upon the circumstances which your credit card account was closed, the impact can be anywhere from mild to severe. Having a creditor close your account because you defaulted on your agreement is a strong blow to your credit score. If you carry a balance, it will be worse.
You will need to work diligently to pay down your debt and improve your credit score. The sooner you reduce the amount you owe, the higher your score will climb. An account that is closed for infrequent use has some drawbacks, especially if this card has been open for a long period of time.
Your credit history, along with your debt, open credit, and credit limit all help to determine your credit score. If your oldest credit card is canceled, your history and credit limit are removed from the equation. Your credit score is then recalculated. If this is your only credit card, your overall credit score may suffer.
Can I re-open my credit card account if I was not delinquent?
Most credit card companies will not allow you to reopen an account that has been closed, for any reason. Both Citibank and Discover refuse this option for security reasons. Other credit card companies like American Express may let you reopen your account if you meet certain criteria. There are numerous requirements and many find it simpler to apply for a new credit card.
It may be a better choice to forget about trying to reopen a closed credit card account because most will not meet the specifications. If you do, you may experience other issues tied to your previous history, including the original decision to close your account.
Before you try reopening a closed account, make sure you have a recent copy of your credit report. If your numbers look good, consider reapplying instead. You can start rebuilding your credit history if you are approved and your new experience can help you avoid future cancellations due to inactivity.
Having knowledge of the credit card industry is one of the best ways to avoid certain pitfalls. In addition to understanding the basics involved, you must also know what influences credit card companies and how they make decisions. It is important that you maintain a healthy credit history, complete with proper management.
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