What to Do When the Bank Cancels Your Credit Card

Nothing can ruin your day faster than finding out your credit card’s been canceled while you’re standing in line at the grocery store or trying to pick up the tab for dinner. Unfortunately, credit card companies have the right to close accounts at their discretion without giving customers a heads-up first.

In some instances, a card can be canceled if it becomes inactive for an extended period of time or if the bank suspects that someone is using your card to make fraudulent charges. Most of the time, however, it all goes back to your account history and your overall credit rating. It can certainly be inconvenient when the bank cancels your card, but knowing how to handle it can minimize the negative impact.

Contact your card issuer

If your card cancellation occurs out of the blue, you’ll want to call up the credit card company to find out why your account’s been closed. Depending on the circumstances surrounding the account closure, you may be able to talk your creditor into reopening the account. At the very least, they should be able to provide some insight into why the card was canceled in the first place.

Credit card companies aren’t required to follow any specific rules when determining whether to close an account. If you stop making payments that pretty much guarantees you won’t be able to use the card for much longer but your account can still be terminated even if you’ve always been a good customer. It all comes down to how much of a risk the card issuer thinks you are.

For example, opening up a new line of credit seems harmless but it could trigger a cancellation, as could running up high balances on other cards. Your credit utilization ratio is the amount of debt you owe versus your total credit line and the higher the number, the more negatively it’s viewed by lenders. Keeping it at or below the 30% mark is considered ideal for maintaining a good credit score.

If you’ve applied for several new accounts in a short period of time or you’re transferring balances around, all of these could send the wrong signal to creditors that you may be in financial trouble. Even if that’s not actually the case, your card issuer’s not going to call and check with you first before cutting you off. While having your account closed may not be fair, understanding the why of it can give you some insight into what behaviors to avoid going forward.

Review your credit report

The next step is to pull your credit report from each of the three credit bureaus to see how the account is listed. This is especially important if the account was closed with a balance still owing or your recent history reflects one or more late payments. Free copies of your credit report are available through AnnualCreditReport.com.

When you’re checking your reports, pay attention to how the card is being reported. For instance, it may say “Closed” or “Closed At Lender’s Request”. That’s not a big distinction but if other lenders are taking a look at your report, they may be curious as to why your creditor shut down your account. If you’re in the process of making a large purchase, such as a home, that could potentially send up a red flag that you’re a higher credit risk.

While you’ve got your reports, you should also be scrutinizing all of your other accounts to see if you can identify what may have caused the cancellation of your card. Specifically, you should be on the lookout for things like late or missed payments, high balances that are close to your overall credit limit and multiple inquiries for new credit.

If you see something that’s inaccurate or incorrect, you have the right to dispute the information. Disputes must be initiated in writing and you’ll need to include your name, account number and a detailed description of what you’re disputing. The card issuer has 30 days to acknowledge receipt of the dispute and two billing cycles to resolve it. Once the creditor determines whether information is correct, they either have to update your report accordingly or notify you as to why the error you’re disputing can’t be changed.

Assess the damage to your credit score

Your credit score is shaped by the information on your credit report and having a card canceled may cause it to drop overnight. Checking your score after an account is closed can give you an idea of just how big of a blow it suffered. You can purchase your FICO score online but many credit card companies offer them to accountholders for free. Just keep in mind that a free score may be calculated differently than an official FICO score.

If you see that your score has gone down by more than just a couple of points, there are a few things you can do to get it back on track. Paying your bills on time is a must, since this accounts for the largest part of your FICO score. If you’re not always great at staying on top of due dates, setting up alerts through your bank’s online banking system or using an app like Mint can help prevent things from falling through the cracks.

Paying down any outstanding balances you owe can also help your score, especially if the card that was canceled ended up increasing your credit utilization ratio. It’s also important to resist the urge to apply for a new card or two to fill the gap right away, since those inquiries will show up on your credit report.

If you had a card closed due to inactivity, it might be time to review your different accounts to see which ones you’re really using. If you’ve got one or two cards that don’t see much action, scheduling a small recurring charge or using them once or twice a month to get gas can help you avoid ending up with another closed account and even more damage to your credit.

Has your bank every cancelled a credit card unexpectedly? What did you do?