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Credit Card Issuers are Closing Unused Accounts

Written by admin - 12 Comments

A reader named Brad recently wrote in to share his experiences with card issuers closing dormant accounts. Here’s what he had to say:

My wife and I have transferred balances from one 0% offer to another for years. We have 13 bank credit cards open and over $200,000 in open credit lines. We have been successful in moving debt around so well that we have paid very few interest or transfer charges over the years.

I’m writing to tell you that last week, I received two notices that accounts were being closed, one for not being tapped in the past 12 months and the other for the past 24 months. That is OK with us, but I wouldn’t want it to continue. Both were Chase and both were accounts previously owned by Providian and WaMu.

It looks like Chase is clamping down on open credit lines that aren’t being utilized.

This is an interesting pattern, and is somewhat in line with the increasingly common practice of reducing credit limits. In this case, they’re decreasing the limits on unused accounts all the way to zero.

While this move probably isn’t a huge deal in most cases, it’s important to keep in mind that lower credit limits will increase your apparent credit utilitization, which can negatively impact your credit score. Given how skittish creditors have gotten, it’s conceivable that this sort of thing could have a ripple effect as other card issuers might react negatively if/when they see your credit score drop.

Edit to add: A reader named Patrick just pinged me to let me know that Discover is likewise closing dormant accounts.

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Comments (scroll down to add your own):

  1. I don’t see any problem with this. Why should they continue to service customers that aren’t utilizing what they offer? Those are in general going to be the higher risk folks that when they do utilize their line of credit are probably only doing so because they are having trouble elsewhere, so it will minimize their risks and headaches while removing problem customers.

    Comment by Blaine Moore — Dec 1st 2008 @ 7:14 pm
  2. Right. I don’t really see it as a problem, either. It’s just something for cardholders to be aware of, especially with regard to the possible credit score effects. If you really want those accounts to stay open, you should use them every once in awhile.

    Comment by admin — Dec 1st 2008 @ 7:16 pm
  3. This could effect me negatively since I have a few cards I do not use.. It would be nice if FICO was intelligent enough to report that these were accounts closed due to inactivity.

    Meaning that a score drop had nothing to do with your ability to pay, ect. However, that would be too much to ask I guess.

    Comment by PennySeeds.com — Dec 2nd 2008 @ 12:57 pm
  4. I’ve had the same experience with Discover. Citi did something different-they moved part of an unused card available balance to another card and THEN closed the unused card.

    Comment by Eric — Dec 2nd 2008 @ 4:10 pm
  5. correct, but credit score doesn’t matter unless you are trying to get a loan and utilization is a minor element of your score and really has a minor affect on insurance premiums unless the score is seriously tanked, which won’t happen unless you default on the credit. but it is a good point to note.

    @pennyseeds: the reduction of score is minor and will vary depending on how long you’ve had the acct. i would use the card to keep it open if it is a long standing card. if it is not a long standing card, then it doesn’t matter if it closes out. your credit age won’t be impacted much by a 2 year old account that gets closed. and even then, it will recover quickly. moreover, if you aren’t getting a loan, it doesn’t matter.

    Comment by Tim — Dec 2nd 2008 @ 7:14 pm
  6. Household Credit is now doing this……but they dang sure extended the offer to me to call in and get a new card, I am sure with worse penalty fee’s and higher interest rates!!! I wont go back but I am more worried about the effect it will have on my credit rating.

    Comment by Brandon — Jan 7th 2009 @ 10:50 pm
  7. Similar, but different: I just had a credit line of $8,000 shut down by WAMU on a card I was using but had small balance. Had nearly paid off as they had just sent me a letter to one of their most valuable customers with checks offering new borrowing at a lower rate. I have a very good credit score, have had the card for years, have perfect payment history including always on time and over the max every time and sometimes paying entire balance, then using again. I had intended to use one of the checks for cash in my bank account to help see me through my business launch. Just logged in one day and found overnight they had closed the account and my available credit went from $8,000 to 0.

    I called their customer service to ask about this and was told they have no authority to do anything and cannot open a closed account ‘the system’ has closed.

    It will greatly impact my credit score removing the $8,000 available credit from my overall usage as I have been getting ready to start a new business using some credit along with available funds and a couple of smaller cards have higher usage. Was saving this and another with a bit more usage but a fair amount available.

    As this could well happen with other consumers with good credit scores and perfect record, do you have any comments?

    Thanks

    Comment by Mary — Jan 26th 2009 @ 5:01 pm
  8. My credit line with Bank of America was 35000K and I was using the card very rarely (once in 3 months). I always used to pay online in full just before the billing date. Effectively no balance in my a/c for the last two years. They just reduced my credit line to 15000K. No explanations were given. Hope this will not affect my credit score or report. Felt let down by the system for no fault of mine. This is happening in the greatest democracy of the world. May be democracy is applicable only to select few. How banks Banks can judge you without a trial or atleast intimate in advance that they are going to shoot you. My credit score in excellant and I know BOA got a system of regularly checking my credit report. There is no negative item in my credit file. Is the banking system is in the grip of panic? I felt help less and attacked!!

    Comment by Aarkay — Mar 31st 2009 @ 1:48 pm
  9. The same thing happen to me I paided of my last credit card balance and in 3 weeks Chase closed my account for not having a balance in over 2 years and B.O.A cut my credit in half. These credit card companies are heartless I have been a customer with Chase for 18 years and they didn’t even put a phone number on the letter they sent me, I felt like you are no use to us now so get lost.I worked hard to get out of credit card debt and instead of being praised now you have to worry about your credit score with all these banks screwing you over.

    Comment by maria — May 25th 2009 @ 12:37 pm
  10. Right before WaMu switched to Chase, I had a credit card with them at a $30,000 credit limit. It was closed due to inactivity without notice by WaMu. I called to asked if I could discuss about keeping it open. They stated it was closed and could not be reopened. Two reasons this was unfortunate was I was about to purschased a much anticipated family vacation on that credit card. The other reason, my credit score dropped 20 points!!!! Luckily I still have exceptional credit, but 20 points helps. A notice would have been nice since I was just about to book my vacation. And yes, we did not go on that vacation.

    Comment by Tonja — May 26th 2009 @ 12:04 pm
  11. I just recently learned that Chase had closed one of my credit card accounts. They kept telling me that is was because of something on my credit report. So I pulled my credit report and it was a good standing with everything. This was an account that I used and paid off when I did or at the very least paid more than the minimum and paid on time. What I’m finding frustrating is the amount of money that is being handed to these banks and for why? They are pulling all of the credit so why do they need these bailouts? Enough is Enough!!!!!

    Comment by Victoria — Jul 15th 2009 @ 3:32 pm
  12. Chase sent a letter saying they were closing a Slate account that hadn’t been used in two years. I called and they transferred the remaining credit line to another account. When Chase absorbed other credit cards (banks) in the past they drastically reduced existing credit limits. They currently in the process of converting MasterCard accounts to Visa.

    Comment by drfamosa — Jul 3rd 2014 @ 5:52 pm

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