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Credit Card Canceled Due to Inactivity? This Is What You Need to Know

Credit Card Basics, Credit Cards, Credit Score
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Credit Card Canceled Due to Inactivity? This Is What You Need to Know

Have you ever received a cancellation notice from your credit card company because you haven’t used the account in a while? It turns out that inactivity is one of the most common reasons a bank will cancel your account. If you’ve been cut off, here are answers to 5 questions you might have:

Why would a credit card company cancel a card I’m not using?

It might seem strange that your credit card company would care one way or another if you’re using your card, but credit card companies only have so much credit they’re able to extend to their customers. If you’re holding onto a credit line that you’re not using, your credit card company would rather take it away from you and give it to another customer that will. This is because there’s the potential that that other person will make purchases they can’t pay off within a month, which translates to profits for the credit card company in the form of interest charges.

Simply put, allowing you to keep an unused account open represents a missed opportunity for the credit card company.

» MORE: Credit card 101

Are credit card companies allowed to do this?

In short, yes. Card issuers are permitted to cancel your credit card for a lot of reasons, inactivity being one of them. What’s more, credit card companies aren’t required to give any notice that they’re giving your account the axe. Although the CARD Act of 2009 states that creditors must provide customers with 45 days notice of major changes to the terms of their accounts, courts have decided that a card cancellation caused by inactivity doesn’t count as one of those major changes.

» MORE: Why nearly every purchase should be on a credit card

How will this affect my finances?

The main way that a canceled credit card will affect your financial picture is by dinging your credit score. The potential damage to your credit can come in a variety of ways. For one, if the credit card that got canceled is your oldest account, the 15% of your credit score determined by the length of your credit history will take a hit. If the card that got canceled was your only one, then the 10% of your score determined by the types of credit you have on your report will be impacted.

But the biggest damage will come from changes to your credit utilization ratio. A card cancellation means that suddenly you have less credit to your name, driving the percentage of credit you have in use relative to your total credit availability up. If you’re carrying balances on lots of other loans, your credit score could take a nosedive.

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What can I do?

Unfortunately, very little. Once you realize your card has been canceled, get in touch with your card issuer right away and ask to have it reinstated. If you act fast, you may be able to negotiate to have the card reopened. But be prepared for bad news – credit card companies are under no obligation to re-establish a canceled account. Moreover, you probably won’t get your rewards back.

How can I avoid it?

If your credit card gets canceled because you’re not using it enough, consider this a lesson learned. The best way to avoid a repeating this mistake is to open a new credit card and be sure you’re using it regularly – at least one or twice per month. Of course, you also need to pay the charges on time and in full at the end of every billing cycle.

The takeaway: If your credit card was canceled due to inactivity, you can try to have your credit card company reinstate it, but it’s likely that you’ll have to open another credit card and establish better habits. Remember, using a credit card frequently and responsibly is the best way to keep your credit score in top form, so don’t let a cancellation happen again.