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How to Bounce Back From a Credit Card Account Shutdown

Life can be full of surprises, both good and bad – and when your bank suddenly takes away the ability to use your credit card, that is more surprise than you bargained for. Although it may seem sudden, there’s almost always an explanation for a credit card account closure.  A quick phone call to your card issuer can illuminate what the issue was – and in some cases allow you to reinstate your credit card quickly; in other cases, however, the closure may be permanent. If you’re wondering how to bounce back from a credit card account shut down, here is what you need to know.

What Is a Credit Account Closure?

Defining a credit card account shutdown or closure is pretty straightforward. When your bank or credit card issuer stops offering you credit on your credit card accounts and closes the line, that is a credit card account closure.

If you’ve ever grabbed a magnifying glass and scanned the terms and conditions document that accompanies each of the credit cards you hold, you’ve probably seen that banks and credit card issuers reserve the right to suspend or close your account, without warning, for a myriad of reasons ranging from nonpayment to inactivity, and even suspected fraud. In some instances, the bank may not even contact you to give you a heads up.

Why Do Banks Close Credit Card Accounts?

Sometimes, this shutdown is due to a simple issue or even miscommunication, making it extremely easy to resolve. In other cases, the situation can be a bit more complicated.

Even if you have a long history of making your payments on or before the deadline and paying them in full, one missed or late payment can cause a credit card issuer to overlook your previously untarnished reputation in favor of an account shutdown, at least temporarily.

What are the most common reasons a creditor might close my account?

  • Inactivity: The card is inactive with no outstanding balance. Credit card account shutdowns due to inactivity usually occur after a year or more with no purchases or balance transfers on the card.
  • Delinquency/ Default: This event usually occurs after one or more late or missed payments on the card account.
  • Card Program Deactivation: Your account might be shut down if the credit card issuer no longer offers the terms of the account of the card program or if the card type has been discontinued.

Many credit experts agree that banks often don’t care what your history is; their primary concern is how your credit and payment history look right now.

This focus is one of the principal reasons that an account can be disabled either temporarily or permanently when you miss even one payment. Missed payments are often the result of significant life disruption.

When we lose our job, visit the emergency room or have a serious medical procedure, or go through a divorce, often our focus isn’t on our credit card debt and monthly payments can easily be swept under the rug. Sometimes the card issuer will take this into account, but this isn’t a guarantee.

What Impact Will a Credit Card Account Closure Have On Your Credit Report?

Having a credit card account closed or shut down can have a severe impact on your credit score. A closed card account immediately reduces your available credit, raising your credit utilization rate. Credit utilization is the amount of available credit on all of the credit accounts you use. It is one of the most significant impactors on a person’s FICO or VantageScore credit score.

Having a credit card account closed also reduces the average age of credit on your credit report. The average age of your credit accounts lets lenders judge your experience with credit, and the longer your history, the better.

Finally, when a bank closes your card account, it remains on your credit report for up to seven years. Your credit report contains various information, including the date of account opening, credit limits, balances, and payment history. Credit bureaus also report on unpaid bills, negative remarks, and other items – including closed accounts.

What to Do If Your Account Is Shut Down?

Now that you know your credit card account was closed, what next?

The first step is to contact the company that issued your credit card to find out why your account was suspended or closed. Once you’ve determined whether the issue at hand is inactivity, nonpayment, fraud, or something more, you can make a plan to tackle the issue head-on.

Typically, accounts suspended due to inactivity or fraud can be fixed quickly, often with one phone call. However, if you’ve missed one or several payments, regaining your account will require more effort on your part.

To reverse the suspension, you’ll be expected to cooperate fully by bringing your account current – paying whatever money is due at that time, including all late fees, as soon as possible. This will not only will bring you back into good standing, paving the way to reinstate your account, but it will be a significant first step toward bringing the total balance on your credit card account down.

Once the account is current, it will be imperative to make on-time payments regularly; meeting your monthly obligations will show the card issuer that you are a customer who can be taken seriously and not a risk.

Penalty APR

When a lender flags your credit card account as delinquent due to a series of missed payments, issuers are likely to change your terms. When you signed up for your credit card, you also agreed to a penalty APR that is utilized in the instance that you make a late payment or miss one entirely.

Penalty APRs can apply to both new purchases and the full balance on a card and typically average at 29%. Penalty APRs usually apply for at least 60 days after a missed payment. That time frame can be extended at the bank’s discretion, so it’s essential to ensure that you fulfill your monthly obligations when it comes to paying off each statement.

Banks and card issuers will evaluate the number of missed payments on your account and your overall creditworthiness, and this information will help them determine whether they will apply the penalty APR and for how long.

Conclusion

Your credit score can change instantly, so it’s essential to plan and ensure that payments are made on time to not risk having an account suspended or even terminated.

A credit card account can be closed for many reasons, the most common of which include delinquency and late or returned payments – and continued neglect will just dig that hole deeper. Since a closed account can bring down your credit score, it’s best to avoid it when possible – especially when it’s due to delinquency.

With proper planning, it is easy to avoid having an account suspended or closed – and, in the case that this does happen, there are tools available that can help you climb out of the hole you’ve dug.

Related Article: Can You Pay Off a Credit Card with a Credit Card?

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About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident credit expert, covering all facets of the credit card space. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.