Is it bad if a credit card company closes your account due to inactivity?
The short answer is yes. A credit card issuer has the right to close your credit card if you don't use it. Unfortunately, closing an account can have an adverse effect on your credit score.
A credit card canceled for inactivity may impact you in the following ways: The cancellation may affect your debt to credit utilization ratio, which is the amount of credit you're using as compared to the amount of credit available to you.
In most cases, however, it's best to keep unused credit cards open so you benefit from longer credit history and lower credit utilization (as a result of more available credit). You can use the card for occasional small purchases or recurring payments to keep it active as opposed to using it regularly.
You may be able to reopen a closed credit card, but it isn't a guarantee. Some issuers will consider reopening a card if it was closed for a minor reason, such as inactivity.
Your credit utilization ratio goes up
By closing a credit card account with zero balance, you're removing all of that card's available balance from the ratio, in turn, increasing your utilization percentage. The higher your balance-to-limit ratio, the more it can hurt your credit.
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.
Keeping the card open can help maintain a healthy credit score by contributing to your credit history and utilization ratio. However, there are valid reasons to consider canceling, such as high annual fees or difficulties managing multiple accounts.
While there's truth to the idea that closing a credit account can lower your score, the magnitude of the effect depends on various factors, such as how many other credit accounts you have and how old those accounts are. Sometimes the impact is minimal and your score drops just a few points.
- Don't close your oldest accounts. ...
- Pay off all your credit card balances. ...
- Call your credit card issuer to confirm your balance is paid off. ...
- Check your credit report in the months after canceling. ...
- Destroy the card after canceling.
What is the 5/24 rule? Many card issuers have criteria for who can qualify for new accounts, but Chase is perhaps the most strict. Chase's 5/24 rule means that you can't be approved for most Chase cards if you've opened five or more personal credit cards (from any card issuer) within the past 24 months.
Do closed accounts hurt my credit score?
Closed accounts paid in full with on-time payments don't hurt your credit score and may even improve it. However, closed accounts that show late payments or a default on the debt can hurt your credit score. In this case, you may want to remove the closed account from your credit report.
Accounts closed in good standing may stay on your credit report for up to 10 years, which generally helps your credit score. Those with adverse information may remain on your credit report for up to seven years.
Contact your credit card issuer
Once you understand the reason why your credit card account has been closed, call your issuer's customer service to ask about reopening the account. When you do, you may be asked to provide some information, such as: Your name. Your Social Security number.
Letting one of your oldest cards close due to inactivity can significantly curtail the length of your credit history, which has a negative effect on your credit score. Maintaining at least a small amount of activity on each of your cards helps keep them active and open.
When you close a credit card and you still owe a balance, the debt you owe doesn't go away. The card agreement still applies, and you are still legally responsible for repayment.
A long history of responsible credit use has the potential to improve your score. If you close your oldest credit card, the length of your credit history will decrease. However, it doesn't affect your credit score right away. Closed accounts can stay on your credit report for as long as 10 years.
Closing an account also does not mean you no longer owe the balance, though a card issuer may transfer a past-due account to a collection agency.
If you don't use your card, your credit card issuer may lower your credit limit or close your account due to inactivity. Closing a credit card account can affect your credit scores by decreasing your available credit and increasing your credit utilization ratio.
You can still make payments on a closed credit card account, you just cannot make purchases with it. To pay off a balance, continue making payments the same way you did before it was closed. You can usually do this online or, if you get a paper bill, via check.
Keeping a low credit utilization ratio is good, but having too many credit cards with zero balance may negatively impact your credit score. If your credit cards have zero balance for several years due to inactivity, your credit card issuer might stop sending account updates to credit bureaus.
Is it better to close credit cards with zero balance?
If you pay off all your credit card accounts (not just the one you're canceling) to $0 before canceling your card, you can avoid a decrease in your credit score. Typically, leaving your credit card accounts open is the best option, even if you're not using them.
Once your credit card is closed, you can no longer use that credit card, but you are still responsible for paying any balance you owe to the creditor. In most situations, creditors will not reopen closed accounts.
- Pay off your balance. It's best to pay off the card's remaining balance before canceling. ...
- Use or transfer remaining rewards. ...
- Update recurring payments to a new card. ...
- Contact your issuer to request closure. ...
- Safely destroy the old card. ...
- Check your credit report.
Scores bounce back: Your credit score should rebound within 3-6 months of canceling your credit card account. Make sure to have at least one open credit card remaining and pay all your bills on time.
In most situations, it's better to keep unused credit card accounts open, as closing credit accounts can have a negative impact on your credit score.
