What Happens If My Credit Card Account Is Closed?

If you've been relying on your credit card for years, it can be a devastating experience for the creditor to suddenly close the account. Some creditors make this move if they decide that the cardholder is too much of a risk --because of late payments or continually going well over the limit -- or if the card appears to be inactive.

Still Make Payments

Just because you can no longer use the credit card does not mean that you do not have to continue payments. When the creditor closes your account it transforms from a standard revolving credit account, which can persist forever, into more of an installment loan with a definite end. Continue to pay the minimum payment or more each month until the balance is zero. Unlike a standard installment loan with a fixed payment, the minimum amount due changes every month as the balance goes down.

Same Terms

The credit card terms usually stay the same when the account is closed. That includes the rate, payment dates and account fees. If the account changes, your creditor will send these updates so look for information in the mail. Call the creditor directly to ask what, if anything, will change regarding your credit card account terms due to the closure so that you're fully informed regarding your account status.

Credit Score Effect

It's not definite that your credit score will change because the creditor closes the account -- that calculation is up to the individual credit bureau. But closing a credit card account can hurt a FICO score since that affects your credit utilization ratio, which is your credit card balances divided by the credit available. Credit utilization is a factor in credit scores. If the creditor closes your account, your credit utilization ratio could go up. However, if the card is at the limit (for instance, a $3,000 balance on a card that has a $3,000 limit) closing it may not change your credit utilization ratio at all.

Benefits of a Closed Account

You may find it difficult to look at the closing of your credit card account as a positive thing. If you rely largely on the card account to cover deficits in your budget, it could seem like a very bad situation. But look at this move as an opportunity for financial growth. For one, you can start looking more closely at your expenses to make cuts so you can start to free up more cash to meet your needs. It's an opportunity to establish a plan to pay off the debt. Call a lender or credit counseling service to see if you can transfer the balance and pay a lower rate interest as you pay off the balance.