If you don’t use a credit card for a year or more, the issuer may decide to cancel the account. In fact, inactivity is one of the most common reasons for account cancellations. If you’ve been cut off, here are five questions you might have:
Why would the issuer care whether I use the card?
Credit card companies are in business to make money. If your account is idle, the card issuer makes no money from transaction fees paid by merchants or from interest (if you carry a balance). Credit card issuers have only so much credit they’re able to extend to their customers, so they’d prefer that customers with credit lines use them rather than let them just sit there. The issuer may cancel your account and give that line of credit to someone who will use it.
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Are credit card companies allowed to do this?
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 closing your account. Although the Credit Card Act of 2009 says creditors must give customers 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.
How will this affect my finances?
The main way a canceled credit card can affect your financial picture is by knocking points off your credit score. It can do that several ways:
- The most significant effect involves your credit utilization ratio. This is the percentage of your available credit that you’re currently using. Say you have $5,000 in available credit and current balances of $1,500. Your utilization is 30%, which is about as high as you should let it go under usual circumstances. Now say an issuer cancels an inactive account with a $2,000 credit line. Your utilization shoots up to 50%.
- If the credit card that got canceled is one of your older accounts, that will affect the average age of your active accounts, which is a factor in the portion of your score affected by length of credit history.
- If the card that got canceled was your only one, then the portion of your score determined by the types of credit you have will be affected.
What can I do?
Unfortunately, very little. Once you learn that 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, if you lost any accumulated rewards when the account was canceled, you probably won’t get them back.
How can I avoid it again in the future?
If your credit card gets canceled because you’re not using it enough, consider this a lesson learned. The best way to avoid repeating this mistake with another card is to use it regularly — at least once every couple of months.
This article has been updated. It was originally published Nov. 25, 2013.