For better or worse, credit cards can be anything from a convenience to a way to pay for sudden, large necessary expenses. So when you open a letter from your creditor to find out that your card is being canceled, it can be jarring. And while the reasoning can be linked to your own actions, that isn’t always true.
Still, in most cases, there are steps you can take to keep this from happening to you again. Here are the top four reasons why your credit card may have been canceled, and how to avoid them.
1. You stopped using the card
If your card has been sitting in the back of your wallet, unused for many months, there is a chance that your credit card company may choose to cancel that card. This would be at the company’s discretion.
So, technically, there is no definite “safe” period during which you can stop using a card and avoid cancellation. But if you can make at least one purchase on that card every few months, you should be able to avoid this happening in the future.
2. Your account is in default
If you’ve fallen behind on payments for a consistent period of time, your credit card company might choose to close that account and demand payment of the full balance. Typically, this happens if you’ve missed payments for 60 to 180 days.
If this is the reason that your card was closed and you can’t repay the stated amount, you may need to consider an option like bankruptcy to get that debt discharged and avoid having your assets frozen or seized. But it’s still worth contacting your credit card company first to see if it’s willing to agree to a payment plan or alternative option.
3. Your creditor is phasing out your card
Sometimes the decision to cancel your card has nothing to do with your own actions. And if a company has made the decision to stop offering a certain credit card, it may choose to phase those out for existing customers as well, resulting in a cancellation. This is, unfortunately, unavoidable for cardholders.
But it’s possible that the company might offer an alternative card in that case, which can help preserve your credit score by maintaining your available credit, especially if it won’t require a hard credit inquiry.
4. Your credit score dropped dramatically
Once you have a credit account with a company, it can check your credit at any time. But if they see that your score has dropped by a significant amount since opening the card, the company may choose to close it because you no longer qualify for that card. This can be extremely frustrating and can further lower your score by increasing your credit utilization ratio (the percentage of credit you’re using relative to what you have).
To combat this from happening in the future, it’s best to track your score. That way, you can take advantage of tools like personal loans and 0% APR balance transfer cards if you do need access to funds to weather a financial emergency, or start taking on high-interest debt and want to avoid issues like default.
Credit card companies hold a lot of power when it comes to the decision to close your account. But if you can avoid these four common reasons, you should be well-positioned to avoid that surprise and maintain access to credit when you need it.