When used responsibly, credit cards can help build your credit history, even if you’re not using them regularly. The longer an account is open, the more it helps improve your length of credit history, and an occasional on-time payment on a little-used credit card can help you maintain a positive payment history.
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But if you’re not careful, your credit card issuer could close your account without your permission, which can harm your credit score. Here’s what you need to know and how to keep your credit cards active.
Why would a credit card company close your card?
Your cardholder agreement allows your card’s issuer to close your account if you’re deemed too much of a risk as a borrower.
Credit card issuers not only check your credit when you apply for a card, but they may also run a routine soft credit check to make sure your credit is still in good shape. They’ll also monitor your account usage for any activity that could suggest that you may be unable to pay your debt or that you’re simply not using the card enough.
Potential reasons for closing your account without your permission include:
- Account inactivity
- Spending over your limit
- You’ve experienced a significant credit score drop
- Violating the terms of the cardholder agreement
- You have too much other debt
- Past-due payments or default
What happens when a credit card company closes your account?
Credit card companies aren’t required to give you notice that they’ve closed your credit card account, especially if it’s due to inactivity.
While that account will remain on your credit reports for up to 10 years, it can still have a negative impact on your credit score. This is primarily because closing the account affects your credit utilization rate.
Your credit utilization rate shows how much of your available credit on credit cards that you’re actually using. For example, let’s say you have the following cards:
- Card A: $0 credit card balance, $6,000 credit limit
- Card B: $2,000 credit card balance, $4,000 credit limit
- Card C: $1,000 credit card balance, $2,000 credit limit
Across your credit cards, your credit utilization rate is 25 percent, which is below the 30 percent threshold many credit experts recommend—although, the lower your utilization rate, the better.
If Card A gets closed because you haven’t been using it, your utilization rate will immediately double to 50 percent, which could harm your credit score. If the account is closed, it also won’t continue to help boost your length of credit history.
Depending on how the account closure impacts your credit, it could make it difficult to get approved for another card in the future. And if your account was closed because you broke your card agreement or the bank viewed you as a risky borrower, you could even get blacklisted by that credit card company entirely.
One thing to keep in mind is that this typically doesn’t apply to business credit cards, because most business card issuers don’t report account activity to the consumer credit bureaus.
How to keep credit cards active
If you’re generally a responsible credit card user, inactivity may be the only threat to your credit card account, according to Equifax. Here are a couple of things you can do to avoid having your account closed involuntary for inactivity:
- Use the card every few months: Every credit card company determines inactivity differently, so it’s hard to know how long you can go before it’s too late. Instead of trying to time it, place a small purchase on the card every few months and pay it off immediately, so you don’t forget.
- Place a small recurring charge on the account: Use the card for a small recurring charge, such as your Netflix or Spotify subscription, and set it up on autopay, so you don’t have to try to remember to pay it off every month.
With one of these steps, you’ll be able to continue to enjoy the credit and other benefits of keeping your account open.