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Did you have a credit card close involuntarily last year? Turns out, you aren’t the only one. CompareCards conducted an online survey of credit cardholders and found that one in seven cardholders experienced just that. The causes varied, but about 14 percent of cardholders had the unpleasant experience of having an involuntary credit card closure.
We dug deeper into why these closures happened and how it made consumers feel when they lost access to their credit card without choosing that course of action. The results may make you think twice about how you use your credit cards.
In this article:
- Key findings
- Whose cards are getting closed?
- The main reason for closure? Inactivity
- The second top reason? Late payments
- Closures lead to annoyance, ambivalence
- How to avoid an involuntary card closure
- Bottom line
- 1 in 7 credit cardholders reported an involuntary closure of one of their cards within the past year. The older you are, the less likely your card was closed against your will.
- About half of those whose card was closed cited inactivity as the main reason for closure. The second most common reason was payment delinquency, capturing 28% of cases.
- Nearly 1 in 2 said their card’s involuntary closure made them less likely to do business with that card’s issuer in the future. However, a quarter actually said it made them more likely to use the issuer down the line.
- Most were annoyed about their card’s closure, but about 1 in 5 didn’t care. Anger (12%), relief (9%) and joy (9%) were also common emotions.
- 37% applied for a new credit card after their other card’s involuntary closure. Three in 10 started using one of their other credit cards, 17% turned to their debit card, and another 17% did something else.
Whose cards are getting closed?
Age may be just a number, but a certain demographic seems to experience more involuntary credit card closures than others. Cardholders who are 18 to 21 years of age (the youngest group surveyed) reported experiencing the most involuntary closures out of any other age group surveyed. On the flip side, the oldest group surveyed experienced involuntary closures the least.
How does age play a factor into these closures? According to Matt Schulz, chief industry analyst at CompareCards, the learning process of youth could be contributing to higher closure rates amongst younger generations, “and for younger folks, it could simply be a matter of mistakes being made triggering a lot of it. When you are overloaded with debt, you don’t have a ton of money anyway and don’t necessarily have a whole lot of experience with credit, and you end up making mistakes. Sometimes that can lead to cards being closed,” Schulz said.
See our roundup of Best Credit Cards for Beginners.
The main reason for closure? Inactivity
There’s a good chance you weren’t aware that your card could be closed against your will, unless you stopped making payments or paid late one too many times. However, if you haven’t been actively using your card much, or at all, an issuer can choose to close the account for inactivity. Even though you may think you’re being wise by avoiding card debt or risking paying late on a card balance, not using a card regularly and making payments can lead to card closure.
Why would inactivity be something that lenders look down on? According to Schulz, it all comes down to risk.
“For banks, closing cards is really about minimizing their risk. If you have a bunch of delinquencies or not paying on time regularly, then banks see you as very risky and may want to limit your access to more debt and limit your risk to them,” says Schulz.
The same goes for inactivity. While it may not seem like a risky move to not use your credit card, it also means banks aren’t getting any value out of you as a cardholder.
“If you’re somebody who hasn’t used that card in a while, banks would just as well close that card rather than just having that card sit out there unused, where if something were to happen to you, you may end up needing to go back to that card in a negative situation.” Plus, you aren’t generating any revenue for the issuer, and it costs them to keep you as a customer.
The second top reason? Late payments
Other top reasons survey respondents listed for involuntary card closures were delinquent payments (28%), and the fact that a lender stopped issuing their card (13%). A small set of respondents were unsure of why their card was closed (4%).
And while the reasoning is unclear, an interesting discovery from the survey found that card closure rates differed according to one’s political party. Republicans were more likely to say their card was closed because of inactivity (73% vs. 52% of Democrats), while Democrats were more likely to say they were delinquent on payments (32% vs. 17% of Republicans).
Closures lead to annoyance, ambivalence
Having a card closed without your consent is likely to bring up a range of emotions. Overwhelmingly, respondents felt annoyed (44%) about a card closure, 12% were angry, and 9% said they felt relieved; however, another 22% stated that they didn’t care. These feelings did not translate well for card issuers.
A full 49% said that an involuntary closure made them less likely to do business with that issuer in the future. Only a quarter said they were actually more likely to do business with the closed card’s issuer.
Schulz explained that these closures are less common during strong economic periods, but that closures can cause frustrations during economic downturns.
“When the economy fell apart 10 years ago, there were a lot of involuntary closures because banks got nervous that folks were going to not be able to pay their bills,” he said. “So they closed a bunch of cards and caused some real issues for people.”
How to avoid an involuntary card closure
Before diving into how to avoid involuntary closures, it’s important to understand why you want to avoid them in the first place. Schulz warns that closing a credit card can damage your credit by hurting your utilization rate, which accounts for 30% of your FICO score. A utilization rate is how much debt you’re carrying to how much available credit you have. If a card is closed, that amount of available credit shrinks if you happen to be carrying a balance or two on other cards. For example, if you have two cards with each having a $1,000 credit limit and you’re carrying $500 in debt on one card, your utilization rate is 25%. If one card is closed, that utilization rate jumps to 50%.
“If your card is closed, it can end up doing some significant short term damage to your credit depending on your current circumstances,” Schulz said.
Schulz offered advice on how to avoid involuntary closures: “The best way to avoid having your card being closed is to use it and pay your bills on time and just handle it wisely.” If it’s a card you don’t really use anymore, but don’t want to close because you’re nervous of the impact on your credit score, he suggested that you can use it for a small recurring charge, like a Netflix or Spotify subscription.
“Put that small subscription on that card and set up autopay to make sure that bill gets paid on time in full every month and then you just basically don’t have to worry about it anymore,” said Schulz.
However, he noted, if your unused card has an annual fee, you may be better off just getting rid of it: “It doesn’t really make much sense to pay $89 a year or whatever the case might be just to keep a card you aren’t going to use anymore.”
If you’ve found it’s too late to avoid a closure, there are steps you can take to fix any damage to your credit score or possibly even reopen your credit card.
As a first step, Schulz advises calling your credit card issuer. Ask why your card was closed and see if there is anything else that can be done to undo that action. If unsuccessful, you could try to increase your credit limit on another existing card to recapture some of that lost utilization ratio.
“After a credit card gets closed, if you can bump up another card’s limit to keep your total available credit the same or close to the same, then you’ve pretty much minimized the risk to your credit score,” Schulz said. Or, you also have the option of opening a new card.
If you find you’re not using a card and you want to keep it from being closed involuntarily, add a small recurring charge to it and set it up for autopay. If you have cards with annual fees that you aren’t using, it may be time to re-evaluate whether you need to keep those cards or not. And, of course, making payments on time is key to being a valued card customer.
CompareCards by LendingTree commissioned Qualtrics to conduct an online survey of 1,046 credit cardholders, with the sample base proportioned to represent the general population. The survey was conducted June 7-11, 2019.