5 Reasons a Credit Card Company Can Close Your Account With No Notice

Want to keep your credit cards available for when you need them? Avoid these five issues.

I wrote recently about a letter we received from one of our credit card issuers, warning us that they would close our account if we didn't use our credit card within a month. Our solution was to use the card to make a small purchase and pay it off immediately.

As it turns out, there are a handful of reasons -- other than inactivity -- that can lead to credit card cancellation. Here are five of them:

1. Drop in credit score

Since credit situations can change over time, credit card companies may check your credit score on a quarterly or monthly basis. In other words, they make an ongoing decision regarding the risk of doing business with you. As cold as it sounds, if your credit card company notices a dramatic drop in your credit score, it worries about how that might impact its bottom line. Will you max out your credit card and stop paying them as agreed?

Credit card companies are not legally required to give you notice that they're closing your account. The truth is, you may not know the account is closed until you attempt to use the card.

Fix: The simplest solution to this problem is to stay ahead of it. Don't take on more debt than you can reasonably repay, even if there's an interruption in your income. In addition, before you proceed with any major financial moves, build an emergency savings account large enough to sustain you and your family for several months. Having money to put toward bills when things go south can help you sleep easier at night while preserving your credit score.

2. Too many added users

Some credit card companies include language regarding how many authorized users you can add to your account, while others are open-ended about it. It's not until you've added too many for their liking that they will cancel your account. It's hard to blame them for their concern. After all, they have to wonder why you're allowing other people to piggyback on your account. Card issuers may also worry that you've added others to your account so you'll have help making payments. It's not knowing that leads to account closures.

Fix: Unless you can completely trust someone with your finances, don't add them to your credit card account. Anything the added user spends on that card becomes your responsibility. If they fail to make payments as agreed, you'll have to. When their credit takes a hit due to their behavior with the card, so does yours.

3. History of exceeding your credit limit

Say you have a credit limit of $5,000. The first time you hit $5,100, the credit card company takes notice. After you've done it several times, the company suspects there's a problem. Not only is the card issuer curious why you're spending more than you've qualified for, but it worries about the fact that you're not paying the card down.

Fix: Just as you keep an eye on your checking account balance to make sure you don't overdraft, make it a practice to always know how much you owe on each credit card. Be sure to factor in interest payments and any charges you're hit with for exceeding your card limit.

4. Too many late payments

Though you might think that credit card companies love late payments due to the charges they generate, too many late payments tells the company that you can no longer handle the card -- for whatever reason.

Fix: If you have trouble remembering to pay your credit card bill, set it up on autopay, so at least the minimum is covered each month.

5. Company dropping the type of card you carry

On occasion, the cancellation of an account has nothing to do with you. Credit card companies sometimes discontinue cards that aren't as profitable as they hoped they would be. If your card is discontinued, but you're in good standing, they may offer to switch you to another one of their cards. Before you do anything, read the new card details and decide whether it's in your interest to sign on. You don't want to get stuck with a higher interest rate, lower credit limit, or any other detail that doesn't work in your favor.

While it's possible to live without credit cards, they certainly make life more convenient. The best way to keep your cards active is to use them regularly, pay them off in full each month, and be selective about allowing anyone else to sign onto them.