The issuer may close the account when a credit card is not used for an extended period (years or even months). Credit card companies can delete accounts for whatever reason they see fit, and inactivity is one of the most common.

Credit card companies aren't obligated to give you notice before closing your account, although they might if they decide to. It is common practice for some businesses to close your account before notifying you in writing.

Reasons for Creditors to Delete Dormant Accounts

The whole thing boils down to a strategic choice. As businesses have few resources, they prioritize extending credit to those using it to rack up charges and interest expenses. After all, that's a significant source of profit for credit card issuers. When you cancel your dormant credit card account, the issuer can reissue that credit line to a borrower who will use it, increasing the issuer's revenue.

Cancellations and Your Credit Score

Depending on the total balance of all of your credit cards, closing an account could increase your credit utilization, negatively impacting your credit score. Thirty percent of your credit score is based on your credit utilization ratio, which is the percentage of your available credit that you are utilizing. Closing a credit card account removes that card's credit limit from your available credit. Your utilization ratio will naturally rise if you carry balances on multiple cards.

Consider a scenario where your total credit card debt is $3,000, and your credit limit is $5,000. Your credit use rate is 60%. In this case, closing a credit card with a $1,000 limit would increase your credit utilization to 75%. Credit usage below 10% is preferable. When it reaches 30%, it becomes excessive.

How Can You Fix This?

Call your credit card company and ask to keep your card active if you receive a notification that it will be closed due to a lack of activity. Propose making a quick buy on the account in exchange for the option to reactivate it.

When a credit card account has been closed, getting the issuer to reopen it can be challenging. However, if you have other credit cards from the same issuer, you can ask to have the limit transferred to one of those cards.

Ways to Prevent the Closure of Dormant Credit Cards

Knowing when your credit card issuer will close your account is challenging because there is no universal inactivity time limit. Six months, a year, two years, or even longer is possible. Make regular charges to your credit card to avoid inactivity fees. You can do this by charging your everyday monthly expenses like your phone or utility bills to the credit card.

Alternatively, you could set a small amount to your credit card every two or three months and then pay off the entire balance when you get your statement. So long as you don't carry a balance, you can keep your credit card account open and operational.

What This Might Do To My Credit

Several aspects of your credit ratings are influenced by a closed account, including:

Employing One's Credit:

The ratio of how much of your available credit you are utilizing is called your credit utilization ratio, and the lower it is, the better. Let's pretend you have $1,500 in outstanding charges across all of your credit cards but a $5,000 inaccessible credit.

It would help if you did not allow your users to rise much higher than 30% under normal conditions. Let's pretend for a second that an issuer with a $2,000 credit limit decides to close a dormant account—your utilization increases to 50%, which will harm your grades.

The Typical Account Age Is:

The element of your credit score based on length of credit history is affected by the average age of your active accounts; if the credit card that was canceled were one that you've had for a long time, that average age would be impacted. Most of the time, more time equals better results.

Definitions Of Credit:

You should have both installment accounts (loans with a defined number of equal monthly payments) and credit card accounts to have a healthy "credit mix." It could be detrimental to your credit if the canceled account were your only one.

Conclusion

Ultimately, you have complete control over your credit score and accounts. Therefore it is in your best interest to take the measures that will yield the most significant benefits. Every time you open a new line of credit, you should consider the impact it could have on your credit score and how you'll handle the account moving forward.