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Credit account closure rules
Dear Debt Adviser:
When does a credit card company terminate a credit card account?
Kim Flippen
Dear Kim:
You did not specify why you asked this question, but often consumers
are concerned about these issues because they are having debt problems
and are worried they will be denied future use of credit cards.
You signed an agreement when you got your credit card.
Locate that agreement and re-read it to find out the specifics.
Each company has a different policy, and laws vary from state to
state. For example, one national clothing store's agreement states:
- We may adjust your credit limit based on your pattern
of payments to us.
- We may limit or cancel your account. If we do,
you must pay us any existing balance.
Another national store's agreement specifies that
they may close your account and you will be in default:
- if you fail to make the required payment when due
- make any false or misleading statements on your
application
- become the subject of bankruptcy or insolvency
proceedings
- die or are declared incompetent
- if information from credit bureaus shows a serious
delinquency or charge-off against you with other creditors.
Companies who have issued credit cards want to continue
doing business with you. You have agreed to these terms and you
should keep up your end of the bargain. However, if you don't or
are unable to, then these companies have different routes they can
take before terminating your account.
The credit card company can turn your account over
to its collection department or even to a debt collection agency.
Internal collection departments generally handle accounts until
they are 90 days to 180 days past due. They may or may not close
your account, depending on your ability to work with them to repay
the past-due balance. The account may be referred to an outside
collection agency. At this point, the account is almost always closed
to prevent further charges. To protect you, the Fair Debt Collection
Practices Act outlines the following conditions that stipulate that
debt collectors:
- may contact you between 8 a.m. and 9 p.m. only.
- may not contact you at work if they know your employer
disapproves.
- may not harass, oppress or abuse you.
- may not lie when collecting debts, such as falsely
implying that you have committed a crime.
- must identify themselves to you on the phone.
- must stop contacting you if you ask them to do
so in writing.
In some states, the company can seek a judgment and
court order to garnish your wages, which means your employer will
have to pay directly to the credit grantor some portion of your
wages. Federal law sets a limit on what portion may be taken, and
many state laws are even more protective.
For big-ticket items such as a car, truck, home appliance
or other durable good purchased on credit, your creditor probably
has a lien on the item. That means that if you fail to pay as agreed,
the creditor may repossess the item.
A credit card company may also report your credit
payment history to the credit reporting agencies. This may result
in you paying more for being issued credit with higher interest
rates in the future, being denied promotions at work, paying more
for insurance or being denied credit altogether.
None of these options sounds very good. The important
issue here is not to get in a situation that could jeopardize your
credit and if you do, be sure to address it at once. Another way
to help your credit is to make good and informed decisions about
which credit cards you obtain.
I hope this information will help you keep your
credit accounts open. I encourage you to pay more than the minimum
balance due on each account and to pay off your debts as quickly
as possible.
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.
-- Posted: Sept. 6, 2002
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