Given the financial uncertainty that is all-encompassing throughout our country, banks have been taking measures to protect themselves. Credit lenders have been meticulously reviewing their relationships and looking for areas of risk to address. Today, I will address what you can do to protect your relationship with the banks and credit score. The rules of thumb will be don’t give the banks a reason to close your card or reduce your credit limit.
Why should you keep your accounts in good standing?
Before I get into what not to do, let me provide a quick refresher on why it’s important to keep accounts open and in good standing. First, staying in the bank’s good graces will continue to leave the door open for new credit card opportunities in the future. Second, if a bank closes an account or reduces a credit limit it can lead to a negative impact on your credit score. Some of the largest factors which impact a credit score are credit utilization and payment history. As you can see, it’s very important to protect your accounts and credit cards.
The following basic breakdown will address things not to do which could result in a bank or credit lender closing your account or reducing credit limits.
Keep the Card Active
This is both the easiest to do and forget. Sometimes we misplace a credit card or store it for safekeeping. Ultimately, if a bank or lender comes across a card that has had no activity in quite some time they will flag the account. This could result in a few things happening. If the bank is nice, you’ll receive a warning letter or email indicating that if you don’t use the card they will close it. Sometimes there is no warning and they just close it. This happened to me with an old Macy’s Credit Card that I hadn’t used in a number of years.
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What you can do to keep it active
Buy something on the card regularly. This might be a coffee or gas for your car. Perhaps a reoccurring bill that is then auto-paid from a checking account. I use this basic spreadsheet to help keep track of the last time that I used some cards that don’t find their way into my basic wallet to frequently.
Cycling Credit Lines
This is the process of utilizing all of the credit on your account and then paying it off within in the same billing cycle multiple times. For example, if you have a $10,000 credit line and spend it all, then pay it and repeat within the same month. This is a huge red flag for banks and credit lenders.
Using multiple methods to pay the credit card balance
Paying a credit card balance with multiple bank accounts can lead to a red flag. This is a telltale sign of money laundering and structuring which a bank or credit lender’s algorithm will identify quickly. Especially if this behavior is reoccurring throughout the same billing period.
What to do if your credit card account is shut down
If your account is shut down, a credit card is closed, or a limit is reduced there is a strategy you can take to try and get your account into good standing. Time will be of the essence if this happens to you. Typically a letter will be mailed to the cardholder explaining why the bank took action on the account. It will be important to call the bank within 30 days in order to file an appeal. Be prepared to explain the reasons why the bank took action and steps you can take going forward in order to comply with whatever red flag that was raised.
Basic Breakdown
If you can follow the expectations above, you shouldn’t run into any issues with a credit lender. It’s important to remember to keep accounts active and not engage in any behavior which would lead a bank to throw up a red flag. Remember that if you do find that your account is closed, you can file an appeal and work towards getting it reinstated.
Have you had an account closed or a credit line reduced? Did you reach out and file an appeal? Please share your data points below in the comments or over in the 4,000 + Member Basic Travel Facebook Group!
