Closing Credit Cards - What It May Cost You
Card issuers have been attacking customers holding inactive accounts open. There are hundreds of complaints already about banks closing credit cards even if they have long and nice payment history. That seems nonsense to customers but banks are only reacting to tight credit and huge write-offs, the latter being unavoidable considering the increased rate of defaults. The other backstroke is the cut of credit card applications both by mail and online.
Banks' consideration is you have their money but you do not pay it back because you do not spend it and have no balances to generate interest on. What they are doing now is forcing you to either close credit card or use it for at least very small purchases. You may choose either way but you should know the consequences and make a most rational choice to play safe.
Some years ago, when easy-to-get credit cards were in abundance, HSBC Bank was seeing the premises for the current developments. Industry gurus admit now that maintaining inactive cards costs banks huge money and it is too expensive to afford in the poor economic climate.
It is easier for them to close credit card and release funds to keep business going. So, card issuers' message to those who are not using plastic is a tough one - use the card or lose it. The second is a sad one. Once your account is closed, whether it was your decision or the bank's act, it hurts your credit scores. Especially, if the closed credit card has the longest and nicest payment history and high limit. If you ever decide to cancel an account, choose a younger one or one with bad payment records.
A certain percentage of customers see the threat to close card as a method to push you into balances you'll never be able to repay. Such customers keep accounts open but inactive only for emergencies as they realize that financing everyday purchases with it may lead to an overload of debt. Again, these are people who are utterly unprofitable for the bank.
Choosing between the lesser of two evils, perhaps cardholders should start a sparing card use. It will not cause you to make debts if you're a reasonable spender and aware of such advantages as 0% introductory rates, no annual fees and cash back or points rewards.
Make small purchases and pay them off each month - that's a simple and innocuous way to keep your credit card. You'll not only save good credit history and access to additional funds when necessary, but you'll be able to profit from expenses and card benefits also. Almost all cards for good score award you points or cash back for each dollar you spend, which you can redeem for gift cards, travel and free merchandise.
To ensure better safety to your score and overall credit rating, do close other cards' accounts, those with smaller limits and shorter payment history. It may take your score down a few points but you'll restore it with the proper use of your best card.
To survive the credit crunch, you need to play the card companies' rules. Isn't it better to profit than lose from them?