If you’re overusing your credit card—or not using it at all—don’t be surprised if your bank shuts it down.
While this could really disrupt your holiday shopping plans, cardholder agreements often state that accounts can be canceled for any reason, without warning.
Here’s a look at why issuers close credit card accounts and what to do if you lose access to yours. In the meantime, hopefully you have enough cash in your checking account or another credit card to make payments with.
Why banks cancel credit cards
Closing credit cards isn’t something issuers enjoy doing. So when it happens, it’s usually for a good reason.
“New and good cardholders are so hard to get in today’s environment, in a market that is near the saturation point,” says Jerry Straessle, who founded the consulting firm JLS Associates and has more than three decades of experience in the card industry. “The likelihood of a card issuer willy nilly going out and closing somebody’s account just for the heck of it, those circumstances just don’t occur.”
Missing payment deadlines or constantly exceeding your credit limit are two reasons why a bank might cancel your card. Your account could also be closed if your credit score plummets or you never use your card.
“Issuers may close accounts for inactivity due to risk and expenses associated with keeping unused accounts open,” says a statement from Discover.
Closing accounts is perfectly legal
If an issuer cancels your card, it’s not obligated to tell you in advance—or at all. In many cases, that’s legal. If your account is closed because of your credit score or something on your credit report, however, you must receive an adverse action notice within 30 days.
Cardholders have many rights, says Chi Chi Wu, staff attorney at the National Consumer Law Center. Constant access to a credit card isn’t one of them.
“If you force a creditor to keep a line of credit open, that presents a safety and soundness issue to these banks,” Wu says.
Closing a credit card—especially an old one—can lower the length of your credit history and hurt your credit score, says Ogechi Igbokwe, a financial expert and founder of OneSavvyDollar. Her score dipped slightly when she stopped using two rewards credit cards and Citibank eventually closed them.
A canceled credit card can also raise your utilization ratio, or how much credit you’re using relative to your limit. If it’s too high (i.e. above 30 percent), your credit score could drop.
How to keep your account open
The best way to avoid having your credit cards canceled? Keep your accounts in good standing. Always make on-time payments and steer clear of your credit line.
Review a different credit report for free every few months to check for errors. And keep your new credit applications to a minimum. Too many inquiries might make an issuer assume you’re in financial trouble, says credit card expert and author Beverly Harzog.
If there are several cards you want to keep open, use them at least once or twice per month, says credit expert John Ulzheimer. Pay off the cards quickly to avoid racking up debt.
“Make purchases you know you’re going to make anyway like filling up your car or paying for your dry cleaning or auto-billing your cable bill against it,” Ulzheimer says.
Challenging your issuer
Using credit responsibly is usually all it takes to keep an account open. If you’ve done that and your bank cancels your card, a mistake may have been made.
Call your issuer immediately. Find out why your card was canceled and make your case if you still want it. If you wait months before contacting your bank, you might have to apply for a new card, Ulzheimer says.
If your account was closed by accident, call until the problem is resolved. Complain to the Consumer Financial Protection Bureau (CFPB) if necessary.
Las Vegas resident Ian Hays says he had a fraud alert on his credit report. Chase forgot to take all of the steps needed to verify his identity before approving him for a card and later canceled it, he says.
Conversations with multiple representatives didn’t get him anywhere, but Hays was finally able to speak to an executive once he contacted the CFPB. Two weeks after his new Sapphire Reserve card was canceled by mistake, the bank reopened his account and awarded him 10,000 bonus points.