Credit Card Closed My Account

I received a letter from my credit card issuer the other day that indicated they were closing my account due to inactivity. It didn’t bother me really, because this is a credit card that I had paid off and never used. However, it was a card I’ve had since 2000 and I was concerned that the canceled card may negatively affect my credit score.

Do Canceled Credit Cards Affect FICO Scores?

The short answer is yes, closing a credit card can affect your FICO score. But the effects on your score are determined by a couple different criteria, so it is important to weigh the pros and cons before closing credit card accounts yourself. If your bank closes them, particularly for reasons such as inactivity, you may want to contact the bank and ask to have your card restored. Here’s why.

The length of time your accounts have been opened ranks third highest in the various factors used to determine your FICO score. Closing an old credit card account effectively reduces the average age of your credit history and can reduce your credit score accordingly. However, closing new accounts can have the opposite effect.

Before you go canceling all of your new credit cards, consider that credit utilization also plays a role in determining your FICO score. Let’s say you owe $2,000 on a credit card, and nothing on a second card, both with a $5,000 credit limit. Your current total credit utilization is 20% (anything less than 30% is considered ideal, in terms of scoring models). One of those accounts was opened last year, and after running up a couple hundred dollars you paid it off and it sat in your sock drawer. The other credit card, the one with a remaining balance, is five years old. The issuer of the newer, debt-free card closes your account due to inactivity, increasing the average age of your active accounts. However, your credit utilization now jumps to 40%, well above the 30% threshold between helping your score and dragging it down.

If this happens to you, act quickly by contacting the credit card issuer and asking for the account to be reopened. They may ask for authorization to check your credit report to make sure you haven’t declared bankruptcy in the last couple months, and in most cases will reopen the account under the agreement that you use the credit card at least a couple times a year.

To avoid this scenario, use credit cards a few times a year to fill up at the gas station and then pay the bill off when it arrives. You won’t be carrying a balance, but you will show signs of activity. That is usually enough to keep credit card issuers happy, and your FICO score intact.

Comments

  1. I had no idea that canceling a credit card could affect your credit score. I just checked my credit score on free site (Credit Karma) and I scored 728.

  2. @Chiko: 728 is a solid score, and I am a fan of Credit Karma’s service, too. Although I have noticed that my score there never seems to change. It has been the same for months, while it fluctuates when calculated by the various credit reporting agencies.

  3. I say go ahead and close it. Sure it will hurt your credit score, but any lender worth half his fancy suit can recognize what has happened and it won’t hurt you.

    Don’t live and die by the FICO!

  4. @the weakonomist: I tend to agree with you. I’m not overly concerned with my FICO score, except for the rare occasion when we are house-hunting and I’m looking to keep the score up before attempting to finance or refinance.

  5. The same thing goes for some companies that are lowing your credit limit. I had a card that had a 3000 limit. I did have a $1300 balance (it’s almost paid off now) they lowered my limit to $1500.. ouch that was close to my new limit! The card will be paid off next month – but you must be careful! (btw.. the card was American Express)

  6. @FrugalDad, a few points:

    1) The letter you may have gotten will tell you that they WILL close your account in the next 30 days. According to their own Terms & Conditions, they have to let you know in writing 30 days before making changes to your account, so if you call soon enough the account should not be closed yet. I suspect that closing accounts, along with lowering limits and increasing APRs is all part of credit card companies’ efforts to reduce their outstanding borrowed debt. The money they “lend” you on the card isn’t all stuck in an account like at a bank. They have to gather huge lines of credit themselves in order to give your card purchasing power.

    2) Closing new accounts also drops your credit score as well. If you run a credit report (not score) and add the total number of months of credit and divide it by the number of lines of credit, you get your average credit line duration. New accounts come in below the average you will get and thus negatively affect the average. Any credit lines whose life is above the average help to positively affect your average credit life. It is best to keep accounts open as long as possible if you can manage it.

    3) Just for clarity, credit utilization is only considered on unsecured lines of credit, i.e.- credit cards. Again, another reason to keep those lines of credit open as it will help to decrease your utilization percentage.

    Even though your card is being changed/cancelled, it doesn’t mean you can’t get credit elsewhere. On my older CitiBank card, they changed my APR from 9% to 20%. Suffice it to say, I just moved my balance onto another card. Ironically it is a CitiBank Platinum Visa from THE SAME COMPANY! On that card I had a 12-month 0% and after that was over, it only moved to 4.24%. I’ve also gotten larger lines of credit on both cards without asking for them. I just can’t figure it out, but in the long run it doesn’t affect me too much anyway.

  7. My whole goal in life is to have a FICO score of zero, no debt, no credit cards, no bankruptcies and everything paid for in cash. Just a few more house payments to go!!! Dave Ramsey rules! Fico drools.

  8. Close them all. If you’re goal is to be debt-free what do you need credit cards and credit scores for? Dave Ramsey calls the FICO score an “I love debt” score. We’ve been brainwashed in to thinking that we need super high FICO scores.

    If you happen to apply for a mortgage rate and don’t get the best rate they have, ask them to do manual underwriting. That’s where they actually have to do work instead of just looking at a FICO score. They’ll actually look at your income and expenditures and payment histories to see if you look like you’ll actually pay back the loan.

  9. @Frugal Dad Did you purposely keep your card live but not use it to help improve your FICO score? I have read that others have used that strategy and have no been hurt a bit by their cards being canceled.

  10. @Craig: Yes, that and it was one of two cards I was keeping for emergencies. I’ll just run everything through the one card now and keep it for travel, etc. I have a utility bill charged to the credit card and then I pay it off every month to keep it current.

  11. @Frugal Dad That’s a smart idea to keep it active. I currently have one card, but heard American Express is a nice card to have for travelers because they offer good benefits. Maybe I should get it and use your strategy, but without fully using the card probably can’t take advantage of any rewards. Just a thought, probably better to just stick with one card.

  12. I am with the weakonomist. I am tired of trying to live and die by the credit score. Mine is in the high range, so a few points here or there isn’t going to kill me. It could be important if I was house hunting… but that isn’t going to happen for awhile. For now I just barrel down and work on keeping my financial house in order.

  13. Some people are just taking this credit score advice a little too seriously. If you don’t want to do anything about your score, go ahead but don’t complain when it is too late and you need to improve it for that investment you’d like to make down the road. Managing your credit score is a lot like eating healthy — it may not do a lot of good to over-manage it in the immediate time-frame but if you start later it may be too little too late.

    A phrase I use a lot but don’t hear to often is that “if you want to play the (social, economic, work) game, you have to play by the rules”. This means that you can stand outside the FICO game and complain about it all you want but if you want to join in, you have to play by the same rules as everyone else. A high score is required for good loans, so have a good score. Don’t sit back and expect the system to change just because you don’t want to play by the rules. If you are able to live without playing the game, all the more power to you but don’t think it makes you any better off than those who do and can manage it to their benefit.

  14. What would be the best way of adding a rewards credit card? Should we just apply for a new card and use it exclusively and cancel one of our other cards? Sort of a quid pro quo.

    or just get the new card and leave the other cards open but unused? No cancellation.

  15. I think we must have had the same bank, one that just got taken over by another, because I got the same letter.

    The funny thing is I got the card to increase my credit before I bought a house. Afterwards I never used it as it got too complex to buy something and pay if off every month with more than 2 cards. Then my wife and I started getting cards and that led to no use at all.

    My understanding is that as long as you use a card every so often and pay it off that month you’re golden. If not pay the minimums and you’re fine. (If you’re trying to build credit)

    I have a house now so I could care less if they take away my card!

  16. What’s a good enough score? Surely that should be enough? Aim for a high — or good enough — FICO score but don’t kill yourself by doing so.

  17. David K -

    I’m with you – “If you want to play the game, you have to play by the rules.” You may not like the rules, but you NEED to know them and play by them anyway if you want to use credit to your advantage.

    I don’t like being in debt – been there, done that, recovered after a lot of work. BUT, I do like having a good credit score and having credit available if I need it.

    I play by the rules, but I use the cards to my advantage in any way I can. I keep my cards open, pay them off every month unless I have a GREAT interest rate offer.

    I will use Home Depot (washer/dryer) & Best Buy cards for necessities (a computer for my son when his hard drive gave out) because they offer NO interest for 12 or 18 months – provided you pay the bill in full before the due date. Check the terms and follow the rules and you can use their money for FREE.

    One card I use for my monthly newspaper, another for the house alarm and pay them off every month. I only charge what I can pay that month (with the HDepot/BBuy exception).

    I have a good credit rating – 753 – despite my earlier credit problems and I intend to keep it that way. Someday I might buy another house or car or need something in an emergency and I want to be prepared.

    The negative on my credit rating is that I don’t have any installment loans (paid for car). I’m not willing to borrow money I don’t need and pay interest to improve my rating further…

    Just because you own a house does not mean you’ll never need a good credit rating again. Things can and do change in unexpected ways at inconvenient times – believe me – I know!

  18. It was funny to see this article, since the same thing happened to me last week. I was astonished to get a letter from one of our credit card issuers saying that our card had been closed due to inactivity.

    Of course it was a card that we haven’t used in about 2 years, but it was odd because I’ve never had a bank close a credit card before!

    I guess this is just a sign that the environment of lending is changing…

    Homemaker Barbi (Danelle Ice)

  19. I have a credit card that I never activated for the last 3 years.
    They increased my credit limit but I have not still activitaed and never used it.
    They sent me the letter to close the account because of its inactivity.

    May I close it, or let them close if they want or do I activate it and do not use it or activate and use it?

    I don’t want to use it because I don’t need it.
    Does it affect my credt score ?

    Tks.

  20. @Dan,

    1) Just because you don’t activate a card doesn’t mean the account is inactive. It just means you can’t use the card you have. Once you receive a card to activate your account has already been open and ready to process transactions.

    2) You can let them close it or just call them up and say you want to keep the account open. If you do want to keep the account open, you many want to start running your groceries on the card and pay it off in full when the bill comes due. You may have to get a new card issued because if the original card isn’t activated within 30-60 days (or so, I don’t know exactly) they automatically stop sending new cards. They will not send and activate any new cards until the account holder calls in to confirm their contact information and gets & activates the new card.

    3) As stated in FrugalDad’s article (and by me above) part of your credit score is based on the average life of your accounts as well as your credit utilization. If you let the account close, then your average credit life will drop and your credit utilization will drop. I would guess that your score couldn’t be affected more than a couple of points seeing as how you never used the card to begin with. Especially if you have other cards that you do use.

  21. I GOT A LETTER TELLING ME MY ACCOUNT WITH MERCHANTS/HSBC HAD BEEN CLOSED DUE TO LACK OF ACTIVITY AND A 0 BALANCE. THEY DID NOT CALL OR WRITE AHEAD OF TIME THEY JUST CLOSED IT AND ADVISED ME. I CALLED THE OFFICE OF THE COMPTROLLER OF THE CURRENCY TO SEE IF THEY COULD DO THAT WITHOUT TELLING ME AHEAD OF TIME. THEY SAID NO RULE REQUIRED THEM TO ADVISE IN ADVANCE…I’D BEEN WITH THE CARD CO. FOR 8 YRS WITH STERLING PAYMENT RECORD.

  22. I had my Capital One credit card since I was 18 (8.5 years). Perfect payment history and I have (had?) a credit score in the 800′s. Suffice to say, they sent me a 60 day til closure letter and when I called I spoke to three levels of reps(2 levels of supervisors)and they all refused to reinstate my card and insisted it was permanent and irreversible. The most they had to offer was that I could “choose to reapply for a new account with Capital One.” I was VERY disappointed in their customer service – I definitely would NOT recommend Capital One to anyone!!! This was my main and oldest card and my average account length has plummeted as a result…

  23. I tried calling Chase to reactivate my closed account. I talked to 5 different people and got the same response–NO. I find it amazing that a company that got my taxpayer bailout is allowed to close my account and hurt my credit score. I’m in the market to buy a house so if anyone has any more suggestions I’d appreciate it.

  24. Companies are closing good customers accounts to cause FICO scores to drop and eventually raise rates. They figured out a way to play the system, and they can screw even their best customers now. The government and American Sheeple even help them out with billions in bailout funds. The whole FICO system is bent in favor of the banks to maximize profits. Wake up and smell the coffee.

  25. Aaaaaah! Run for the hills, Bob is revealing the BIG SCAM to the rest of us who are blind!

    Considering that the FICO scoring system has so little to do with your average account life span and debt to limit ratio, I would not guess that is a HUGE CONSPIRACY by the credit card companies. I think it is more of a case of them wanting to lower their own risk factor and overall lines of debt so they can cut their bottom line and continue operating in this time of recession. Credit card companies must borrow money to cover your line of credit with them. If, for instance, you had a card for 5 years and never used it, why should the company continue to have that open line of debt hanging over their own heads? If they must cut out those people who don’t use their cards anyway, so be it. It is business after all. Let me know how it goes when you run your own business and give away all your profits to those who you think deserve it. Please keep a record of how long you stay in business that way.

    On a similar note, FICO is simply a scoring system as designed by Fair Isaac Corporation. Many banks and credit card companies use it and others don’t. They may have created their own scoring method. Fair Isaac has also created the FICO’09 system (can’t recall exactly what it is called at the moment) which will revamp the way your credit score is calculated. Of course, moving to the new scoring method is voluntary and many banks have chosen to stick with the older system. The FICO score is simply a way of assessing risk and translating it to a number we can all understand.

    I doubt any of this will sink in, but I have tried nonetheless.

  26. I just got a letter from Citizens Bank that they closed my account due to inactivity. I was miffed. I just paid off the balance on july 10,2008 so its only been inactive for 6 months. What concerns me is that they raised my credit limit a couple of months back and sent me a great balance transfer offer that I was going to use. I am concerned that my debt to limit ratio will go up and cause my score to drop which in turn will cause my other creditors to raise my rates under their “universal default” clause. My Fico score was 723 last I checked and I have not missd a payment in 6 yrs.

    I called Citizens and the rep was very rude and said there was nothing they could do, it was closed. After reading posts here about getting advanced notice of account changes, I called back and got another rep who put in a request for review, took my financial info, and assured me that this would be an internal review, not an inquiry like a new application.

    I know the goal is Cash only and that is what I have been trying to do by keeping my score up so I could get good offers and pay down old debt from my younger careless years. What ticks me off is that I worked for Citizens for many years and thought they were the best!!

    I hope they can reopen my account without and if so I will use it for gas or to pay utilities just to keep it active. Once my other debt is gone, they can go ahead and close away!

    I am not house hunting now but considering refinancing so I cant afford a hit to my credit!

    Glad I found this site. Its good reading!

  27. @Marie, as I and others have said before, your overall credit score won’t change much. And if you are applying for credit elsewhere, the creditor will usually see that it was closed by the card issuer and not by you (check on this by getting a credit report). I would think your score wouldn’t even drop 6-8 points from that.

    If you can, just get another credit card somewhere else — I would suggest a Citibank Platinum Visa card. I’ve got one and they have given me great rates as well as great balance transfer terms. There are websites around where you can “shop” for credit cards by terms, rewards, transfer rates, etc.

  28. I received a notice that my credit card company had already closed my account due to inactivity. This is a card I’ve had for 20 years, but last used two years ago. I called the company and asked to have the card reopened and they said no. They told me I could reapply for a credit card but my old account could not be opened again. What advice would you give?

  29. Lynn, You should first call back and ask again for your account to be reviewed manually not by the autonmated system.

    I did this with my Citizens card I posted about earlier and they did reopen! Just got the letter from them today!

  30. I received a letter from Wachovia recently, stating all services linked to my credit card will be deactivated unless I call or accept a new card online. I went the online route and it seems they want to issue me a new card.

    I have had this card for about five or six years and it is my longest open credit card on file. If Wachovia deactivates the card, will this impact my score somewhat? I am assuming so. Also, with the newly issued card, would this show history from my longest open card or not? Thanks in advance!

  31. I want to maintain my current accounts, use each one (3 major cards) monthly to maintain my usage record and pay each off every month (which I nearly do).

    BUT, I am getting so fed up with the games these companies are playing that sometimes I am tempted to just cut them all up.

    I just keep reminding myself that my mission is to get as much benefit from the accounts as possible, while paying them as little interest as possible.

  32. “Closing an old credit card account effectively reduces the average age of your credit history and can reduce your credit score accordingly. However, closing new accounts can have the opposite effect.”

    I question the accuracy of this statement. If closed accounts stay on your report for 10 years, and are still used in the equation, then there is no immediate effect on your score due to avg age. And closing either an old or new card will have the same effect on the usage/limit ratio.

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