Will Closing Out My Credit Card Ruin My Relationship With My Bank?

For some individuals, closing out a credit card account can make a lot of sense. Not everyone uses credit cards responsibly – and when the symptoms of mounting high-interest rate revolving credit card debt gradually become more evident, it becomes time to nip things in the bud and take better control of your personal finances.

Even for those consumers who use credit cards responsibly, it can sometimes be advantageous to consider closing out an account after making a balance transfer away to a different card with a lower introductory promotional interest rate. But, are there negative consequences to closing out a credit card? Can doing so hurt your credit score and profile? Is it possible that closing out a credit card account can ruin your relationship with your bank? Let’s take a closer look.

For individuals who have difficulty controlling their spending habits, the best medicine can be closing a credit card account. Cancelling the card becomes a self-imposed behavioral limit on spending – and preventing oneself from falling into a rising pile of debt is certainly an important benefit to those who need it. A secondary benefit can come from removing any high annual fees that a card may charge.

A high annual fee can make holding onto a card not worth the cost. Then there are those times when transferring a balance to a promotional low-interest rate credit card can give rise to considering closing the previous high-interest rate credit card account. But, are there potential negative consequences in the form of a lower credit score or a damaged relationship with your issuing bank?

When a credit card is cancelled, it will usually have a negative impact upon an individual’s credit score. This is because the credit utilization rate – the percentage of available credit that an individual has currently borrowed – is a variable that contributes approximately 30% toward the calculation of a FICO score.

Lenders look for a credit utilization rate of below 30%, as this illustrates an ability to manage necessary expenses without relying excessively on credit cards or other forms of debt. Since closing credit card accounts reduces the total available credit, the credit utilization rate rises and a credit score can drop.

Furthermore, since credit history (average account age) contributes approximately 15% toward the calculation of a FICO score, the credit score can drop because cancelling a credit card account often reduces the average age of remaining accounts.

Relationship banking is the practice of cultivating a single point of service for a variety of banking products while strengthening the loyalty of the individual customer to the bank providing the service. A banking relationship may begin with a checking or savings account and then go on to include a credit card account, a personal loan or other loans, insurance, investments, certificates of deposit, a safe deposit box, etc.

The point here is that the bank goes about the deliberate business of broadening the banking relationship and anchoring the customer to the bank – not the other way around. Relationship banking began as a common approach at small-town banks before spreading to national money-center banks (Citibank, Chase, Wells Fargo, Bank of America, etc.) who now emphasize cross-selling a variety of banking products and services to their individual customers.

Therefore, closing a credit card account is not likely to damage your relationship with your bank – however, attempting to close your account will likely be met with some initial resistance by the bank employee or telephone customer service representative. If this happens, simply stand your ground. It is your right to close your credit card account and you are not obligated to keep it open. Then over time, expect your bank to make overtures at extending your relationship again – either through offering you another credit card, banking product or service.

Remember – this is the practice of relationship banking and your bank is in the business of leveraging its relationship with you by cross-selling to you as many products and services as it can.

The short answer is yes – and maybe this would ruin their relationship with you – making you less likely to conduct additional business with them in the future! Banks generally want your business, so this isn’t likely to happen often – but it absolutely can. Credit card issuers close customer accounts when they determine a customer is no longer creditworthy.

This surprising outcome annoys customers and often comes as a shock – because banks can close accounts (or reduce available credit lines) without any prior notice. It should not come as a surprise that a bank would close a credit card account when a customer defaults on making payments or files bankruptcy.

However, banks close credit card accounts for inactivity or for reasons they deem as credit risks – even with active accounts involving cardholders who pay on time each month. These risks include: current monthly payment as a percentage of the amount due in the previous month, maximum balance as a percentage of credit limit in the past three cycles, and length of time the account has been open.

If this happens to you, remember – their are plenty of other banks out there that would like to have you as a customer and begin the process of relationship banking with you.

Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.

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