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Ask Creditnet: Dealing with Closed Credit Card Accounts

 

Dear Creditnet: I recently lost my job and won't be able to make next month's credit card payment. So I called the credit card company to discuss my options. Less than a week later, they closed my account without even notifying me. I was told by a customer service agent that it didn't matter whether I closed the account or they did because it affects my credit the same. Is this true? Also, is there a way to get this off my credit report now? Or should I just wait for it to go to collections and then negeotiate a "pay for delete"?

Answer: As you've unfortunately experienced, credit card issuers can still close accounts whenever their little hearts desire. If you're not late on payments and they choose to close your account, the notation will simply show up on your credit reports as something like "Account Closed By Creditor". There's nothing you can really do to get this removed, as it's accurate information and should be noted on your reports.

And while closed accounts generally have a negative effect on your credit score, this entry itself isn't what will hurt your score. The loss of available credit, which affects your credit utilization ratio, or shortened length of credit history are most likely the variables that will have the greatest impact on your credit score when an account is closed. It's actually true that it doesn't make a difference whether your creditor shut down the credit card or you requested the closure. According to Ron Griffin, a director at Experian, "which party closed the account has no bearing on a credit score."

However, don't forget that potential lenders may express concern when they take a closer look at your credit reports and find several accounts closed by creditors. They prefer to see accounts closed by you, not your credit card company. So it never hurts to ask your creditor to make the change. Now, even though your account is closed, you still need to at least make your minimum payments or pay off the balance in full.

The credit card company's hardship department should be willing to work with you to develop a payment plan, but don't expect to negotiate any sort of settlement as long as you have income and are making timely payments. Try to agree upon a payment plan that you can afford, and then stick to the plan and pay off the debt as soon as possible. In addition, it's a good idea to do your best to resolve this matter while the account is still in good standing with the original creditor. If you ignore the issue and wait for the account to go to collections, you may even end up with two negative marks on your credit reports for the same account—one from the original creditor and one from the collection agency.

Besides, original creditors are typically much easier to work with than the average collection agency. Debt collectors can be downright nasty.

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Joshua Heckathorn's picture

Joshua Heckathorn was President of Creditnet, is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past ten years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

Visit 's Google Plus profile for more.

Comments

loulou's picture

I always find it amazing when people write reviews on how a card holder can be pro-active by calling ahead and trying to work with the credit card company in order to either lower the apr or work out a payment solution for current accounts. When you have a current account there is no negotiating on what minimum payment is currently being requested, no deferment capability. They figure if you can pay your monthly bill on time then why would they need to negotiate anything? If you have a current account and now find yourself unemployed and unable to make your payments and you do not have card/account protection, you need to allow your account to go into arrears/delinquent before collections will contact you (or you call them) in order to help you out. And by helping you out I don't mean they will allow you to negotiate, they will offer you something that may still not actually be of use to you. Hardship only applies to natural disaster areas that are considered hardship areas by FEMA and your zip code applies.. there is also hardship for Military primary/spouse.. Having your apr lowered by calling your credit card company and escalating the call to a suprvsr is also pretty useless unless your account is retainable.. if you threaten to close your account due to the interest rate you may be able to be retained by the retention department providing you with a lower apr for a certain amount of time on a certain amount of the balance. Why financial advisers go onto Oprah or write in newspapers spouting off that 'yes-be proactive and reqst lower apr/negotiate your minimum payments' is beyond me.. seriously, if you actually worked for a credit card company you would realize how useless these claims are. If you allow your account to go into arrears/deliquent, expect that your credit history will be affected not just for THAT card.. expect now that your credit score/report will be reported to other credit cards you may have good standing with..and due to your acct history with the deliquent account you may find your credit availablity lowered due to bureau reasons or have your account closed on your good accounts.

READ THE INSERTS that are sent to your post! So many people neglect to read the finer print on change in terms that are sent out.. your cushy 9.9% or 17.5% apr rate will be upped to a miserable 25.24% in 45 days .. read this as you have the opportunity to 'opt out' of the CIT so you can close the account and pay your balance down (if you have one) at your 9.9% or 17.5% apr instead of agreeing to the 25.24% apr.. just means you close the account down and get to save a little money in interest. Sux if you need your credit card and have to suck it up and accept the 25.24% increased apr rate.

Ignorance is not an excuse, educate yourself on your credit card(s). I firmly believe that schools across the *world* need to educate teens on how credit works and the level of responsibility it takes in order to have credit. This should be a requirement in upper level schools/high school or a requirement within a first year university/college.

.oO steps off soap box..

Joshua Heckathorn's picture

I agree - our schools should definitely be required to teach more about credit and personal finance. Luckily, I had parents who cared enough to teach me from a young age. Otherwise, who knows what kind of mess I might have gotten myself into when I was a young student.