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My Credit Went From Good to Fair — Can My Issuer Cancel My Credit Card?

Dec. 22, 2014
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My Credit Went From Good to Fair — Can My Issuer Cancel My Credit Card?
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Having average credit isn’t the end of the world, but it could be the end of your credit card account.

If your credit score drops considerably, the bank can cancel your credit card. But if that account is in good standing, a cancellation is unlikely. What’s far more likely is an increase in your interest rate or a reduction in your credit limit.

Credit card issuers regularly check your credit profile

The bank that issued your credit card checked your credit before approving your application, but its screening of your credit didn’t stop there.

Banks regularly check the credit profile of their accountholders. They may or may not do a “hard pull” of your credit report, but they do keep an eye on things. And when a red flag pops up, they’ll review how it might affect your relationship.

Let’s say you keep your credit card account in good standing, but you are behind on your mortgage. The credit card issuer will note if you go into foreclosure and may decide that your account is no longer a risk they want to take, thus canceling your card.

But banks are more likely to cancel a card if you don’t keep it in good standing, rather than for unrelated activity on your credit report.

Keep your payments on time and balance well below the limit

Banks are more apt to cancel your card because you failed to make payments than they are for a newly fair credit score. But before they close your account for missed payments, they’ll likely increase your interest rate.

If you fail to make a payment on your credit card for 60 days, the bank can impose the penalty APR, an interest rate up to 29.99%. Generally, credit card companies can’t raise the interest on an existing balance, but this penalty APR is an exception to that rule.

Interest rate hikes are possible when you sink from good to fair credit

Even if you make your payments, however, the bank can raise your interest rate. In the case of a significant credit score drop, they are bound by rules in the CARD Act, which include:

  • Giving you a 45-day notice of the interest rate increase
  • Applying the new interest rate only to new purchases
  • Giving you the option to close the account instead of accepting the new interest rate
  • Reconsidering the interest rate change if your credit improves

Prevent negative changes in your credit card accounts

To prevent the closing of a credit card account or the raising of an interest rate, simply work hard to keep your credit in good standing and raise it back from a fair credit score.

Make your payments on time, keep your balance below 30% of the limit and make periodic purchases. Also, monitor your credit report to ensure you’re seeing what the bank is seeing. This way you can catch errors and possibly find areas in need of improvement before they affect your account standing.

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