Closing Accounts (Part 2)

In my last post, I discussed why you should aim to keep accounts open. Fortunately, the effort that you have to put forth usually consists of making at least one purchase a year on a credit card that you would not normally use.

What happens if the creditor decides to close your account? What should you do then? Additionally, what if you have a good reason to close your account, such as the card has an annual fee and you don’t use the card?

Before we get to these issues, let’s talk about what happens if you did close an account, but later realize it was a mistake and want to reopen it. Most creditors will allow the reopening of a credit card if it was closed voluntarily and in good standing, but rules vary based on the creditor. Some require that you reopen the card within a month; others will reopen for up to a year. Some will not require a hard pull to re-establish the account, while others will. Your best bet is to contact the creditor and ask about the details.

As is common with these situations, though, if you don’t get the answer you want, you should call back and talk to someone else. Searching on the Internet for similar experiences may provide some additional data points.

Now, let’s tackle what happens when a credit card company wants to close your account. There are three common scenarios where this may occur: closure due to nonpayment, closure due to no longer offering the card, and closure due to lack of use.

If a creditor closes your card because of late payments or nonpayment, most of the time you’re out of luck. You can try by calling, but don’t get your hopes up.

In the credit world, new credit cards come along frequently and older cards are often retired. If this is the case, sometimes you will be grandfathered in, meaning you can keep the card, but someone who doesn’t have it can no longer get it. In some cases, however, your card may be converted to a different card with the same creditor or even another creditor. Neither of these is cause for concern.

If a card is closed due to lack of use, you may have some wiggle room. First, scouring the Internet for data points may tell you if you’ll be successful. Calling the company see if the card can be reopened is your next step. Again, if you don’t get the answer you want, you can try calling again, especially if you’ve learned of other success stories.

One final thing to note about account closures is that if there’s absolutely no way that the account can be opened, you may want to ask if your credit limit from that card can be transferred to another. This will lessen the impact to your credit score. I’ll discuss moving credit limits in more detail in my next post.

Lastly, let’s talk about the situation where you want to close a card due to an annual fee. Some credit cards have an annual fee, which is usually charged to the card automatically on the anniversary of your account opening. If you don’t use the card much, or at all, you may think that it’s silly to pay the annual fee and you may be correct. By calling the company, you might be able to get them to waive the fee. In general, this is more successful if you use the card a lot, but it depends on the creditor. I’ll note that I’ve had more success in the past when the card has an annual fee that’s waived the first year. In many cases, I’ve gotten the second year fee waived as well.

If the fee cannot be waived, one option many companies have is to product change or downgrade the card to one that has no annual fee. This is often a possibility when companies offer many cards, especially when those cards are related. In any case, your best course of action is to call the company to see if it’s possible. Usually, cards with annual fees have better perks, but even if you intend on rarely using the card, your credit score will still benefit from keeping it open.

Although product changing doesn’t usually incur a hard pull, you should ask. Every creditor has different procedures and those procedures change over time.

Finally, be sure to ask if the new account will retain the original open date of the initial account, as this may impact your decision to product change as well.