If you have been at the store, ready to make a purchase only to find out that your card has been declined, it can be very embarrassing and frustrating. What is even worse is when you call the card issuer to inquire about the problem and they inform you that your card has been canceled. How could this happen? Even those with perfect credit and who have paid every one of their credit card bills on time have been subject to this event, leaving many with the simple question of “Why?”.
Below, we will discuss this phenomenon to give you an idea of what may happen to you in the future.
Not Addressed in Credit Card Reform
Many actions were taken to make sure that credit card usage and interactions between cardholders and card-issuers were kept as fair as possible, but credit card cancellation policies were not one of the issues addressed in the Credit CARD Act of 2009. While many no longer have to worry about interest rate hikes and fees for going over the limit, the policies regarding credit card cancellation saw very little in terms of alteration. Essentially, credit card companies still have complete control over how much credit is issued to any customer and whether or not that credit line can be continued or canceled – regardless of reason.
What Motivates Credit Card Companies to Do This
In the aftermath of the Great Recession, credit card companies have had to deal with not only new regulations set forth by Congress, but also an unstable credit market that has yet to fully recover. Many of the problems that arose for the economy were directly tied to credit, so companies are taking a more proactive approach in determining who is allowed to continue using credit cards and who is not. Most companies evaluate spending and payment history with both the card-issuer and other card companies, credit card scores as reported by the three major bureaus and any other credit report information that is deemed valid. If companies feel there may be any risk in continuing the status quo with a customer, they may move to lower the credit limit or cancel the card altogether.
No Requirements for Notification
What is even worse for consumers is that any notification that the card has been canceled is not required on the part of card-issuers. While notices must be mailed out to cardholders whenever there is a rate change or large change to the account’s terms, this does not apply to outright notification. A recent court case filed by a cardholder over this issue resulted in the ruling determining that credit card companies do not have to provide written notice for cancellation or an adjustment in credit limit. Only if your credit card is being canceled due to a shift in credit scores are they required to provide ample notification.
Unfortunately, there is no way to plan for the possibility of having your credit card unexpectedly canceled. Still, you can minimize the chance of this happening by taking out fewer loans, making your payments on time and keeping your debt to income ratio as low as possible.