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.
Why Close a Credit Card Account?
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?
What Happens When I Cancel My Credit Card?
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.
Can a Bank Close My Credit Card Account?
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.
About The Author: Steven Brachman
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.
Time and again, I did not know how to handle my debt
Time and again, I did not know how to handle my debt. Even when I paid my credit cards off, a few months later I was back in the same situation. But this year is different. I contacted United Settlement...
Business debt relief is what I needed when I contacted the United Settlement crew
Business debt relief is what I needed when I contacted the United Settlement crew. They are committed to helping people like me who requires more help with business debt problems. I had several loans out...
Student loan debt was the reason that I reached out to United Settlement
Student loan debt was the reason that I reached out to United Settlement. I had about 200K plus in student loan debt for my business degree. I recognized that I had to do something when I struggled to make...
There is nothing worse than falling ill and then having to deal with super expensive medical bills
There is nothing worse than falling ill and then having to deal with super expensive medical bills that you really do not have the patience or experience to handle. I was pleased with my experience with...
I took out a few personal credit cards to open my boutique
I took out a few personal credit cards to open my boutique. When than money ran out, I went on to take out more loans for my business. However, this quickly turned into a disaster. Today, I now have a mountain...
Who knew that auto loans were so negative for your credit lines
Who knew that auto loans were so negative for your credit lines? Especially, if they are not paid off right away. As a married couple, we had vowed to keep auto loan debt at bay. But, we found ourselves...
I didn’t have a ton of debt when I contacted United Settlement
I didn’t have a ton of debt when I contacted United Settlement, but what I wanted from them was some information about how to handle my debt management. I knew that I needed some more information to get...
Federal student loans were the reason I ended up at United Settlement
Federal student loans were the reason I ended up at United Settlement. I had about $200K to pay back and I was not quite sure where to tackle that debt once I got out of school. But I reached out to that...
Everyone knows how horrible student loans are
Everyone knows how horrible student loans are. For me and my family, they had become more than just an annoying monthly bill. They had taken over our lives. That’s why I decided to take action and find...
I wanted to be more informed about my own personal and business debt
The number one reason I chose to contact United Settlement was I wanted to be more informed about my own personal and business debt. When you have credit card debt, it can be extremely frustrating. Especially...
I cannot believe I was finally able to find a company to actually help me pay off my debt
I cannot believe I was finally able to find a company to actually help me pay off my debt! I thought I would forever be chained to debt. But United Settlement offered me multiple solutions for paying off...
What your money can do for you.
The great reviews that you have thanks.
Dealing with high interest auto loan debt was difficult for me and my wife
Dealing with high interest auto loan debt was difficult for me and my wife. We thought we got a good deal, but it actually was a horrible loan. So, we reached out to United Settlement, and they got to work...
No one really wants to go bankrupt, and neither did my family
No one really wants to go bankrupt, and neither did my family. But fortunately, we did not have to go that route. It was our last resort, but United Settlement helped us figure out a way around bankruptcy...
I had been through about 5 different credit counseling agencies before I found United Settlement
I had been through about 5 different credit counseling agencies before I found United Settlement. I had read through their reviews and made the decision to move forward with them. I also was so impressed...
Save time and money
Just what I needed, already had a company I was working with and I switched because I was able to same some money. Brian and Alfred were really nice and helpful
As a business facing some unwanted financial difficulties
As a business facing some unwanted financial difficulties, we were at a loss for what to do next when our debt started to soar. We took a closer look at our financial situation by contacting United Settlement....
I had no clue how to create a debt management plan
I had no clue how to create a debt management plan and in fact, I didn't even know what a debt management plan was. Fortunately, I reached out to United Settlement before I had too much debt to tackle....
Being burdened by debt is one of the biggest struggles we faced as a family
Being burdened by debt is one of the biggest struggles we faced as a family. But these people at United Settlement were very helpful in deciphering the different debts we had and then coming up with a debt...
Student loan debt was my worst enemy before I ran into United Settlement
Student loan debt was my worst enemy before I ran into United Settlement. I really thought I would just have terrible credit for the rest of my life because I will never get out from underneath it. It was...