I started digging into the credit card companies cancellation policy after being contacted by Jean Moss, 89, of Chestnut Hill, whose unexpired American Express card was declined, much to her surprise, when she tried it on last month.
Moss was told by American Express that her card was canceled two and a half years ago, just before the pandemic hit. She pleaded on the phone and in a letter, saying, “I pray with all my heart that I can get my points back.
Moss said she kept her American Express card in her wallet, with a piece of paper attached to it noting her last conversation with the company. The handwritten note shows she had $285 in rewards points the last time she checked, but American Express when I contacted her said the value of her now lost points was closer to $30 .
I urged American Express to give Moss a break. It is one of the largest credit card companies in the country, with over $40 billion in annual revenue. Moss lives primarily on Social Security. She really didn’t do anything wrong, other than being too passive.
Credit card companies are not very transparent about their cancellation policy. In fact, there’s nothing in American Express’s 10-page terms and conditions (the fine print) that specifies what period of inactivity will trigger cancellation.
In other words, American Express may cancel your card for inactivity at its sole discretion. In fact, American Express says it can cancel your card for any reason (and, by implication, no reason) “…even if you pay on time and your account is not in default.
I asked American Express why there was no fixed period for cancellation due to inactivity. A representative told me that all credit card companies keep their cancellation policies confidential because they don’t want their competitors to gain an advantage by knowing their internal policies. It seems a bit selfish to me.
If you have an unused card in your wallet or hidden in a desk drawer, there are several ways to check its status. If you’re trying to buy something and your card is declined, chances are your credit card company has canceled it. Inactivity is one of the most common reasons for cancellation. (Late payment is another common problem.)
Having your credit card declined doesn’t hurt your credit score, but it can be embarrassing, especially if you’re standing in front of a store’s cash register with a line behind you.
Another way to check is to simply call the number on the back. I did this with a card I opened years ago but apparently only used once. It’s been in my wallet the whole time, unused but still unexpired according to the date on the front.
The credit card company rep I spoke with told me that my card had been canceled a long time ago because it had been “inactive for too long”, but was unable to determine when it was cancelled. I have no recollection of ever receiving a notice.
Did the cancellation lower my credit rating? The representative said no, it “shouldn’t”. (Note the wiggle room she allowed.) My account was in “very good reputation,” she said, though any position, good or bad, seems inconsistent with it being closed. .
So I looked at my credit report. It listed my closed credit card as open, but unblemished. It takes a while, I learned, for credit rating agencies to catch up with changes in some accounts – up to 10 years. (Ten years seems like a terribly long time for an update. This worried me: are these the people who “manage” our credit system?)
My first impulse was to think that closing an unused credit card account would improve my credit rating by eliminating the risk of me using it recklessly. But no, it actually acts as a drag on credit ratings. This is because of what is called the “debt to credit utilization ratio”. I know, it sounds awful. But it’s simply a measure of how close you are to your credit limit.
Credit rating agencies favor consumers who qualify for a lot of credit but only use a small portion of it. Let’s say I have two credit cards from different companies, each with a credit limit of $15,000. My total credit is $30,000.
Let’s say I have $6,000 in debt on one card, zero on the other. The amount of credit I “used” is $6,000, or 20% of my credit limit. So much the better for me: 20% is very respectable. Most credit experts say your ratio should be below 30% for your best credit score.
But my total credit is halved if the no balance card is canceled for inactivity. If my debt stays the same, my credit ratio goes up to 40%. This could lead to credit deterioration.
Rating agencies also take into account the length of your credit history – the longer the better. When your card is cancelled, the length of your credit history is reduced.
What to do? I will open another credit card to increase my total credit. (To keep it alive, I’ll put one of my recurring subscriptions on it.)
Credit protection is one reason to check your unused card, another is to possibly recover any rewards points you may have had on it.
Most credit card companies take points away from you when they close your account. But you might be able to get them back if you’re within a short time after quitting. American Express, for example, says it has a 90-day grace period after cancellation.
At the end of the line ? Use this card or you may lose it.
I have a problem? Send your consumer concern to [email protected]. Follow him on Twitter @spmurphyboston.
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