Can Creditors Close a Good-Standing Account?

Consumers who keep their credit cards in good standing may assume they're not at risk of having their accounts canceled by their card issuer. However, a credit card company and a cardholder have competing interests when it comes to protecting their finances, which can cause some cardholders to lose their accounts.

Regulations

The U.S. Equal Credit Opportunity Act (ECOA) gives credit card companies the right to close accounts that cardholders aren't using. Furthermore, the ECOA doesn't require card issuers to give cardholders advance notice before closing their unused accounts. Even longtime customers whose accounts are in good standing may have unused credit cards canceled by a card issuer if the issuer sees the unused account as a potential credit risk for the company.

Credit Risks

Sometimes cardholders who haven't used a credit card for a long time only begin using it because they've lost their job or have unexpected expenses to pay. That presents a risk to the card issuer if a customer's financial situation makes it difficult or impossible to pay off the credit card charges. Nonetheless, a 2009 "New York Times" article on credit card industry losses notes that some cardholders who have unused accounts in good standing keep them open simply to bolster their credit scores. For instance, the length of time a consumer maintains credit and loan accounts in good standing affects about 15 percent of a FICO credit score. The older an account, the better it is for a consumer's score.

Credit Lines

Creditors also may close inactive accounts that have large credit lines to offer more credit to other customers. Canceling large, unused credit lines helps a card issuer protect the company's profits. For example, closing an inactive account with a $20,000 credit line frees the issuer to offer that large credit line to another qualifying customer who may use it. The issuer would then profit from any interest earned on the account balance.

Avoiding Cancelation

You can avoid having a credit card closed for inactivity by using it at least one time per month. Keep yourself from accumulating additional debt by charging things to your card that you regularly buy. Avoid racking up interest charges by paying off the card balance each month. You also should keep track of your card issuer's terms. Some issuers change their terms to charge cardholders annual fees or membership fees just for the privilege of having a credit card.