Reader Mail: What to Do When Your Credit Card Issuer Threatens to Close Your Account

Last week, a Mint reader sent in the following question:

“Today my bank (a large national bank) sent me a letter saying that if I don’t use my credit card in 30 days they will close my account. Can they really do that?”

Answer:

The short answer to the reader’s question is yes, they can close your credit card account.  The longer answer is much more complicated and exposes what I’ve been trying to tell people for years, which is that banks are in business primarily to make money, not friends.

A bank or credit card issuer doesn’t make a dime from their cardholders if they don’t use their credit cards.  The exception is if the credit card issuer charges annual fees.  In this case, the Mint reader has a card from an issuer who isn’t charging an annual fee and is basically telling him that he generates no revenue because he doesn’t use his card or doesn’t use his card enough.  This “zero revenue” customer has been told that if he can’t become profitable, then they don’t want him to have one of their cards any longer.

There is no law that prevents credit card issuers from closing accounts and they don’t have to have any specific reason for doing so.  They can close your account because you’ve become too risky, too unprofitable, or because they’re reducing the size of their credit card portfolio.  They also don’t have to provide you with any upfront notice before they close the card.  If they use your credit report and/or credit scores as a basis for their decision, then they do have to provide you with a Notice of Adverse Action and your credit score, but that doesn’t have to be sent until after your card has been closed.

What Should I Do?

The knee-jerk reaction is to tell your credit card issuer to pound sand, but that might not be the best strategy.  Remember, you’ve got a credit score to be concerned with and the closure of the card can lead to a lower score because you’ll no longer benefit from the unused credit limit.  The potential damage to your score varies, depending on how high your credit limit is on the account that might be closed and how much credit card debt you have with other issuers.

If you have a hefty limit on the “at-risk” card and credit card debt elsewhere, then the closure could be damaging.  On the flip side, if your limit was modest and you don’t really have any credit card debt then the score impact will likely be minimal or meaningless.  You’ll also lose the ability to charge items on that card, so there’s the loss of capacity.  If you don’t really care about losing the capacity to use that card, then why did you open it in the first place?

If the card issuer doesn’t charge you an annual fee and you don’t want to lose it, then I suggest you consider doing what they ask and use the card.  The reason they want you to use the card is because they will make some amount of revenue when you swipe the card.  The fee they’ll be paid is called “interchange”, but most people simply call it the swipe fee.  That fee is paid by the merchant that accepted your card, not by you.  Hey, revenue is revenue, regardless of where it comes from.

You don’t have to go out and get into debt, so don’t let the credit card hating crowd convince you that you’re being lead by your wallet into debt.  You can pay for groceries, a tank of gas, lunch, or some other minimal expense and then pay it off online even before your statement shows up.  That keeps the debt off of your credit reports, keeps your credit scores in good shape, keeps the issuer off your back, and keeps a credit card in your wallet as an option.

You might want to knock the dust off of all of your cards from time to time so you don’t get anymore of those letters.  At the end of the day, a cardholder who never uses their cards is actually a loss for the issuer because of the fully loaded cost of maintaining a cardholder’s account.  The issuer has the exposure of the full credit limit (you can go out and immediately charge thousands of dollars and never pay the issuer back), and they have to get something out of their investment to justify the risk.

Do you have a question you’d like answered by credit expert, John Ulzheimer? If so, please send it to editor@mint.com

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.