Why Are Banks Canceling Credit Cards?
Consumers that use credit cards have seen a rise in credit card cancellations in 2009. Often these cancelations have been without warning and for no apparent. Although new regulation taking effect in 2010 increases rate hike notices to 45 days, it does not require credit card companies to give notice on canceled cards. As a result of the weakening economy, credit card issuers have sought for ways to decrease risk. Closing accounts is one of the companies' solutions.
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Rising Unemployment
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Because more unemployment makes customers more risky, many credit card companies started to worry when unemployment was on the rise. Therefore, issuers reevaluated their risk and began closing accounts.
Cancelled Co-Branded Cards
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Some credit card companies have decided to close co-branded credit cards. For example, Citi has canceled its MasterCard accounts with some of its gas partners, such as Shell.
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Lower Credit Score
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A lower credit score means more risk for the credit card companies. When the company sees a credit score is lower, it may decide the card is no longer worth its risk.
Unused Cards
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Inactive credit cards cost credit cards money. Therefore, if a credit card is not used within a year, the credit card company may decide to cancel the card.
Delinquent Payments
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Credit card companies have always had the right to cancel credit cards when the account was delinquent; however, with a rise of 1.32 percent of delinquent accounts at the end of the first quarter in 2009, credit card companies are closing more delinquent accounts to reduce their risk.
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References
- Photo Credit Image by Flickr.com, courtesy of Andres Rueda
