Credit

Ask Jean: Cancellations and Your Credit Score

Posted by Jean

“I had a card cancelled because of debt on other cards. The company cited a ‘credit review’ even though I was not late on my payments.  Is this allowed under the CARD Act?  Is it something that is common?” – Joseph

Lenders conduct credit reviews periodically to evaluate the riskiness of their customers. If a card issuer feels you’re too great a financial risk – whether it’s because of how much credit you have available, or because your credit score suddenly decreased – they may cancel your account to protect themselves.

The CARD Act does contains many provisions that protect credit customers – such as outlawing the Universal Default practice, preventing your lender from making drastic changes to your accounts, like raising your APR, based on the status of any of your other bills or debts. However, Bill Hardekopf of LowCards.com says that, just as you’re allowed to cancel your card if you see a problem with the issuer, issuers have the right to cancel your card if they feel you’re too great a risk.

“Card issuers have been very proactive in cutting their financial risk in the past year,” says Hardekopf, “not only by canceling accounts, but by cutting credit limits on millions of account holders and also by tightening the approval rates on new applications.”

So what can you do? First and foremost, keep an eye on your credit report for any mistakes or errors that spell out risk to your lenders. You should also work to keep your credit score strong. That means paying your bills on time, using only 10 – 30% of your available credit, keeping your longstanding accounts open, and avoid doing too much shopping for new lines of credit. If you’re still concerned about your score, try my new product, the JeanChatzky Score Builder, which can help boost your score over time.