What to do when your credit card gets cancelled.
A credit card provider is within his rights to cancel a credit card for reasons that he deems are appropriate and within the provisions of the federal law. A creditor may close a credit card when there is not much activity for a long period of time or when a consumer defaults on the payments.
A creditor may be a debt taking on closing a and an active credit card account because he can use the credit limit available on your card to extend somebody else’s credit limit who is giving him business. This is a decision that all creditors are faced with making and they prefer customers who are charging their credit cards and stands to make them more money rather than a person who has been inactive on their credit card For a long time. A credit card provider may inform you beforehand or may simply inform you after the credit card is close. He may or may not give you a chance to become active on your credit card account so that it does not have to be closed. Why you should be concerned with a credit card account getting can even though you have not been using it much in the past is because cancel credit card can hurt your credit scores.
The effects of a cancelled credit card on your credit score
the very first effects that are cancel credit card will have is on your credit utilisation. When a credit card account gets cancelled your credit utilisation increases. Credit utilisation is the total amount of credit available to you and the actual part of the credit that use. So if you had $5000 available in credit including all your credit cards and you get a credit card with $1000 limit cancel then your total credit limit comes down to $4000. If your overall balance on other cards was $1000 your credit utilisation increases from 20% to 25%. In certain circumstances cancellation of one credit card could make your credit utilisation go very high. The credit utilisation should typically be around 30%.
one way to offset the negative impact of a cancel credit card is by asking the other credit card providers to increase the credit limit on the existing credit cards. Usually credit card providers offer a credit limit increase on their own and based on information present on your credit history. Factors such as payment history, current income and the last increase in credit limit a custard before approving you for credit increase.
Another effects that a closed credit card is supposed to have is a shortening the length of your credit History. The length of credit history is the duration that it goes back into the years. This is also factor that has taken into consideration while calculating the credit score. If the credit cards that gets cancelled is one of your older accounts then this may result in the shortening of your credit history once this account falls off your credit report. However paid and current accounts that are closed remain on the credit report for a period of 10 years. Which means that the next 10 years this account will continue to show on your credit report and influence your credit score positively. So shortening of the credit history is something that you will be need not worry about for the next 10 years after the credit account has been closed if the account was paid and current when it was closed. However it is still something that you might consider for the future. If the credit card accounts that gets closed now are the only old accounts you have your length of credit history might suffer severely after 10 years on all of them drop of your credit report suddenly.
How to Handle a Creditor Closing Your Credit Card Account
if you find out in advance that your creditor is considering closing your credit card account you can speak to him and request it to be kept open by offering to make purchases on the account immediately. If the account is closed it will be more difficult for you to get it reopened. However if you have another credit card account with the same creditor the numeric question to transfer the credit limit to the existing credit card. While this step will not decrease the impact of closed credit card might have on your credit history age it will help you maintain the credit utilisation.
Preventing credit cards from closing the to inactivity.
The simplest thing to avoid a situation where the creditor closes your credit card account due to inactivity is that you keep charging the credit card periodically. Make up modest charge on the credit card every 2 to 3 months and pay the balance in full when you receive the statement.