Can You Stop Paying Closed Credit Card Accounts?

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 In the last year all my credit cards (3) have been closed on me, and I don’t know why, I have always paid on time. Now I am paying on closed accounts, and I would like to know what will happen if I stop paying them? Thank you. – Anette

Dear Anette,

Unfortunately, many credit card companies have closed card accounts recently; some without any notification. Imagine dining in a restaurant or taking a trip and finding out your card is canceled right when you are trying to pay. It can be an embarrassing situation that sometimes creates panic. You may wonder: Was my card stolen? Did I do something wrong?

According to Equal Credit Opportunity by the Federal Trade Commission, you are entitled to notification why the account was closed, unless the account was inactive or you defaulted in some way with the card.

Risky Accounts

Creditors are increasingly keeping an eye on cardholders who may become unemployed, may not be able to pay their bills, or may file bankruptcy. There are a number of red flags that could make the creditor think your account is a high risk account. Some of these include, a large number of credit card applications, maxed out accounts, and late payments. Excessive cash advances, going over your limit or bouncing checks are additional indicators of high risk accounts.

Inactivity

One of the most popular reasons for a creditor to suddenly cancel a credit card is inactivity. If you have been paying your bills on time and haven’t had any problems with your accounts, your accounts may have been closed due to inactivity. Apparently, if you do not use your cards, it is also perceived as risky because the cards are open to fraud and theft, which can result in a potentially large liability to the creditor.

Drop in Credit Score

A sudden drop in your credit score could indicate a few things such as job loss, late or missed payments, or some other issue that affects a person’s ability to make the credit card payments. Credit card companies are on the lookout for accounts that could end up in trouble. Many lending companies prefer to just close the account instead of taking the risk.

To answer the second part of your question, you do still need to make your payments according to the credit card agreement, even if the account is closed. If you default and do not make your payments, the same things will occur that would occur if the accounts were open and you failed to make your minimum monthly payment on the card. Eventually, the creditor will attempt to collect and the account will end up in collections, which is going to harm your credit score more than your accounts being closed.

If you have other credit cards, (especially if the closed cards were canceled due to inactivity) you may want to try transferring the balances to the open accounts; preferably during a 0% balance transfer phase. If your credit is not damaged, I would also suggest trying to acquire a card that includes an introductory APR to transfer the balances from the closed accounts to. However, regardless of the strategy you decide upon, you will still need to continue making your payments and pay off the cards. The sooner you pay them off, the better; and less time spent worrying about a closed account.

If you do not have the option of transferring the balance to either a new card or an open card, or if you have had anything on your report that has affected it negatively, call the card company. There is a good chance that the APR may have increased or the credit limit lowered to right above the amount that you owe. It would be in your best interest in this case to attempt setting up a payment plan with a lower APR and then if you are able to, pay it off as soon as possible.

FICO recommends that consumers continue to make their payments on time, keep balances on revolving accounts low, and only apply and acquire new credit when necessary.  In order to avoid cards being cancelled due to inactivity, use your cards – even if it is only on a small purchase that you pay off right away. If the card hasn’t been used in a year, you may be at risk for cancellation.

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