When can an issuer close your credit card account? Even if you're not in default, an issuer can boot you at any time
If AmEx doesn't like what it sees, it may lower your spending limit or cancel your account. "Our intent is to strike the right balance between accommodating our card members' spending needs, while also prudently managing credit risk -- for us and for our card members," Conway wrote.
Chase follows a similar policy. The company declined a requested interview for this story. But the Chase Freedom credit card agreement says one of the reasons your account may be considered in default is if the company believes you "may be unwilling or unable to pay your debts on time."
Even if you're not in default, an issuer can boot you at any time. The most common reason is that you're not using the account often enough. From the issuer's perspective, it's better to give that line of credit to someone who will use the card frequently and rack up interest charges. "Sometimes we close accounts based not on your actions or inactions, but on our business needs," the Chase Freedom agreement reads.
There's no notice required for an obvious reason. They don't want you to run out and rack up a big bill if they've determined you're not creditworthy anymore.
Credit score damage
Card cancellations can impact your credit score in a couple of ways, according to Anthony Sprauve, director of public relations for FICO, the company that provides the most widely used credit score for individuals. Sprauve says that credit card companies provide a code for every account they close, cancellation due to delinquency or default will ding your credit score. Any other reason should not, Sprauve says.
What will hurt your score, however, is the sudden change in credit utilization. Your credit utilization ratio is the amount of credit you're using compared to how much you have available. It accounts for 30 percent of your FICO score. If you're using only 25 percent of your available credit line, you're seen as a better credit risk than someone who's maxing out their cards.
Lose a big chunk of available credit through a card closure and suddenly your utilization will go up if you are carrying balances on other cards -- and your score will go down. Sprauve recommends paying down your existing debt to below 25 percent, or applying for new credit to once again reduce your credit utilization.
