An issuer closed your credit card account without notification. Why?

Credit card holders look to their cards as a convenient and ready source of financing. You might be surprised to learn a credit card issuer can close your account without notification for a variety of reasons.

What should you do in this situation? And what happens to any rewards you had on the card?

Banks don’t need to notify about credit card account closings

The Truth in Lending Act requires your card issuer to notify you of certain significant changes to the terms of your card account. For instance, it must notify you at least 45 days in advance before raising some fees — and also before raising your card interest rate.

However, if your variable interest rate is based on an index, such as the prime rate, and the index goes up, your issuer does not have to notify you that your interest rate will go up as well. The issuer also doesn’t have to give you advance notice of when your promotional interest period will end (though you should already be aware of such information from the terms of the promotional offer).

Issuers also don’t have to notify you in advance if they decide to close your credit card account.

Reasons for an issuer to close a card account

While you can manage your account responsibly and avoid being in this situation, you could still find yourself impacted by a card closure. Adding insult to injury, a card issuer doesn’t even need to notify you in advance if it decides to go ahead and close your account.

Why would an issuer close a card account anyway?

You don’t use your card

If you carry multiple credit cards and tend to favor some of them more than others, it may be that you are just not using one of the cards. Depending on your spending pattern and the rewards the cards generate, it may be that you rarely turn to this card to fund your purchases.

That sort of strategic spending is good for you, but it isn’t in the best interest of the card issuer, particularly if the card doesn’t carry an annual fee. The issuer is trying to generate business off your account and has allocated a part of its lending power to your account. If you don’t use this card, your account remains inactive and does not generate the fees the issuer would receive were you to use the card.

You didn’t accept new terms

It could be that the issuer changed the terms of the card and you did not accept them. For instance, you may have opted for a card based on its appealing rewards program, which you thought would more than offset the card’s annual fee. Well, the issuer can also change some terms after your first year. It could hike up the annual fee, for one.

The Credit Card Accountability Responsibility and Disclosure (CARD) Act lays out that a card issuer has to send you advance notice of such significant changes, which could also include a hike in late payment fees or cash advance fees, among other things. It will have to give you notice 45 days in advance and allow you to opt-out if you don’t accept the changes. If you do choose to opt-out, the card issuer is free to close your account.

There are other changes, such as raising your minimum payment, for which the issuer has to give you the same advance notice, but doesn’t have to give you the right to opt-out. And when it comes to closing your account, the law doesn’t even require advance notification.

You didn’t comply with card terms

One reason for card account closure that might be more in your control is whether you adhere to the terms of the card. For instance, you should be careful to make at least your minimum payment by the date your payment is due.

If you repeatedly make late payments, that could be a cause for concern. And if your payment doesn’t go through, say your check bounces, and this happens more than once, your issuer might want to review your account.

If you stick to your end of the contract, you will remain in the card issuer’s good graces and not give it cause to close your account.

Your circumstances changed

Another reason why an issuer might close your account is if your income declines, maybe due to a job loss. The card issuer might also discontinue a card, in which case all those who hold that particular card will be impacted. In this case, the issuer could decide to switch you to a similar card.

How an issuer closing your card account affects you

Along with no longer being able to use your card, the biggest potential impact of having your card account closed by an issuer is on your credit score (often a negative impact). Whether an account is closed at your request or by an issuer without notification, your credit may be affected in two or three key ways:

You’ll have less available credit (and a higher credit utilization ratio)

When one of your card accounts closes, you’ll lose access to that line of credit. This means you’ll have less total credit available for purchases across your card accounts. For example, if you had three cards each with a $2,000 limit and then one of them was closed, your total available credit would drop from $6,000 to $4,000.

With less available credit, any balances you’re carrying and any purchases you make will represent a larger percentage of your available credit. In other words, you’ll be using more of your credit, giving you a higher credit utilization ratio.

Going back to our example, if you had a $1,500 balance spread across your three cards and total available credit of $6,000, your credit utilization ratio would be 25 percent. That’s not amazing, but it at least adheres to the rule of thumb that you should try to maintain a ratio under 30 percent. If you lost $2,000 in available credit, this ratio would jump to nearly 40 percent.

Credit utilization is a key factor in building and maintaining a good credit score, making up 30 percent of your total FICO score calculation. So if one of your accounts is closed, you may see your score drop due to higher credit utilization.

The length of your credit history may shift

Depending on how recently you opened your card account, having that account closed could have a noticeable impact on the length of your credit history, which considers factors in the age of your oldest and newest credit accounts as well as the average length of time all of your accounts have been open.

When it comes to your credit score, the longer your credit history, the better.

So if the account is one of your oldest, having it closed will likely hurt your score. On the other hand, if the account is newer, closing it may not have as big of an impact on the length of your credit history.

While length of credit history only makes up 15 percent of your FICO score, it’s still a key factor to keep in mind if you’re facing an account closing.

Your credit mix may be disrupted

If the account was your only revolving credit account, having it closed will reduce the variety of credit types you have to manage, referred to as your credit mix.

Having a diverse mix of credit types including both revolving credit and installment loans helps demonstrate to lenders that you’re a responsible borrower who can successfully manage credit cards, personal loans, a mortgage and more. For your credit score, the more variety in your credit mix, the better.

With one less type of credit, your score may drop. However, credit mix only makes up 10 percent of your FICO score, so while it’s worth being aware of, it’s far from the most impactful factor.

What to do if an issuer closes your account

Whatever the reason, if you did not want to close the account and want to hold on to your card, your best bet is to negotiate with the issuer. Contact a representative, tell them that you want to continue using your card and see what they can do for you.

As for any rewards you have on the card, whether you can retain them after a card’s closing depends on what type of rewards they are. If they’re made out by your card issuer itself, you will most likely not have access to them following a card’s closing. However, if the rewards are issued by another entity, such as miles issued by an airline, in a tie-up with the issuer, you will likely be able to hold on to those miles.

The bottom line

A card issuer can close your credit card without advance notice. If you haven’t been using your card or you violated the terms of your card account, that could lead the issuer to close it.

If you want to hold on to a certain card, you should make at least minimal use of it and stick to its terms of use. In the event that an issuer closes an account you wish to keep using, be sure to negotiate with them.