How to avoid having your credit cards closed

When used responsibly, credit cards can help build your credit history, even if you don’t use them regularly. The longer an account is open, the more it will help to improve the length of your credit history, and a one-time, one-time payment on a lightly used credit card can help you maintain a positive payment history.

But if you’re not careful, your credit card issuer could close your account without your permission, which can hurt your credit score. Here’s what you need to know and how to keep your credit cards active.

Your cardholder agreement allows your card issuer to close your account if they deem you too risky as a borrower.

Credit card issuers not only check your credit when you apply for a card, but they may also do a routine soft credit check to make sure your credit is still in good standing. They’ll also monitor your account usage for any activity that might suggest you can’t pay your debt or that you’re simply not using the card enough.

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Potential reasons for closing your account without your permission include:

• Account inactivity
• Spend above your limit
• You’ve experienced a significant drop in your credit score
• Violate the terms of the cardholder agreement
• You have too many other debts
• Payments in arrears or non-payment

Credit card companies are not required to notify you that they have closed your credit card account, especially if it is due to inactivity.

Although this account will remain on your credit reports for up to 10 years, it can still have a negative impact on your credit score. This is mainly because closing your account affects your credit utilization rate.

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Your credit utilization rate shows how much of your available credit on credit cards you’re actually using. For example, let’s say you have the following cards:

• Card A: $0 credit card balance, $6,000 credit limit
• Card B: $2,000 credit card balance, $4,000 credit limit
• Card C: $1,000 credit card balance, $2,000 credit limit

On your credit cards, your credit utilization rate is 25 percent, which is below the 30 percent threshold that many credit experts recommend, although the lower your ‘usage, better.

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If Card A is closed because you haven’t used it, your utilization rate will immediately double to 50 percent, which could hurt your credit score. If the account is closed, it will also not help to increase the length of your credit history.

Depending on how closing your account affects your credit, it could make it harder to get approved for another card in the future. And if your account was closed because you breached your card agreement or the bank deemed you a risky borrower, you could even be blacklisted by the credit card company.

One thing to keep in mind is that this usually doesn’t apply to business credit cards, because most business card issuers don’t report account activity to the consumer credit bureaus.

If you’re generally a responsible credit card user, inactivity may be the only threat to your credit card account, according to Equifax. Here are a couple of things you can do to prevent your account from being involuntarily closed due to inactivity:

• Use the card every few months: Each credit card company determines inactivity differently, so it’s hard to know how long you can go before it’s too late. Instead of trying to time it, put a small purchase on the card every few months and pay it off right away so you don’t forget.
• Place a small recurring charge on the account: Use the card for a small recurring charge, like your Netflix or Spotify subscription, and set it up for autopay so you don’t have to remember to pay it every month.

With one of these steps, you can continue to enjoy the credit and other benefits of keeping your account open.