U.S. Markets closed

Recovering From a Credit Card Account Shutdown

Bob Musinski

If your ability to use a credit card gets abruptly shut down by your credit card company, there are several possible reasons why. Sometimes the problem can be solved with just a phone call to the issuer, while other situations -- such as delinquency with your monthly payments -- might result in permanent closure.

The next steps you take are crucial. Contact the company to find out what happened, and if needed, develop a plan to regain the full power of your credit card.

[Read: Best Credit Cards for Fair Credit.]

Why Are Credit Card Accounts Suspended?

Credit card issuers have the right to suspend or close your card without warning for reasons such as nonpayment, inactivity and suspected fraud.

For example, the company might freeze your account temporarily if your card was used for a major purchase out of state that didn't fit your usual pattern. If you made the charge, you should call the issuer to acknowledge you made it.

If your card was canceled by a credit issuer because of inactivity, you could make a case with the company to reinstate it, with the commitment to use it more regularly.

A shutdown due to nonpayment can be more complicated. It shouldn't be a surprise to have charging abilities taken away if you haven't made a minimum payment in a few months. Even if you were making on-time monthly payments for years before missing payments, you can't expect a company to overlook current delinquency problems.

For the credit card issuers, "it's not necessarily what you looked like in the past, it's more like how you look right now," says John Ulzheimer, a credit expert who has worked at Equifax and FICO.

Even if you're confronting your debt repayment problems head on, such as through a hardship program or debt management plan, an issuer will very likely revoke your ability to charge on the card temporarily and might even close it permanently.

Hardship programs and DMPs are often the result of a major life disruption -- such as a job loss, medical issue or divorce -- that puts your financial world into a tailspin. A hardship program is when you work with the credit card company directly to address your situation, and a debt management plan is developed with a credit counseling agency to tackle multiple credit card debts.

Your account will be suspended or closed while you're on a payment plan because you've taken on so much debt, and "the best way to get out of a hole is to stop digging," Ulzheimer says.

"Normally a DMP is on the tail end of missing payments and cardholder instability," Ulzheimer says. "It's usually something that's possibly already resulted in missed payments or soon will be associated with missed payments."

The good news is that a DMP or a hardship plan could shrink your payments and interest rate to help you get back on track. It may be easier to make regular payments and improve your overall credit standing.

First Steps to Take After a Suspension

A suspension can serve as a reminder that your credit card agreement is essentially a loan -- one that you are expected to pay back. The first step is to find out why your account was suspended. Get in touch with the issuer and determine whether the reason is fraud, inactivity or nonpayment. Inactivity or fraud suspensions may be resolved with a single contact, but nonpayment will require more action on your part.

Typically, issuers will expect you to bring your account current as soon as possible to reverse the suspension. Then, once the account is made current, it's vital to meet your monthly obligations.

"Generally, the way to get back into good graces (with an issuer) is to make payments on time," Ulzheimer says. "That good data changes their minds about you."

Another way to make sure the creditor understands you can handle a credit card is to make more than just the minimum payment each month.

Nancy Bistritz-Balkan, vice president of communications and consumer education at Equifax, says, "Paying more than the minimum payment due and paying the balance in full each month indicates that you are comfortable with the level of debt you owe."

Robert Dunn, vice president of counseling at Consumer Credit Counseling Service of Buffalo, says what is most important for a suspended account is that "on-time payments are being made on that account, and that if, and once the suspension is lifted, the card continues to be used regularly and responsibly, meaning payments are made on time, the balance is kept as low as possible, and the card is used at least close to a monthly basis."

[Read: Best Student Credit Cards.]

How to Get Your Account Back to Normal

Your first priority for recovery after a suspension due to missed payments should be lowering your interest rate.

When your account is delinquent, issuers can make changes to your terms, such as imposing a penalty APR after you're 60 days late on a payment. Penalty APRs are commonly around 29% and typically apply to outstanding balances and new purchases.

Your credit line might have been decreased to match your balance owed. This can affect your ability to continue spending on the card as well as negatively influence your credit score.

If you want to get a lower interest rate and higher credit line, it's likely you'll need to show your creditworthiness over a period of time. You'll need to demonstrate responsible use on other accounts as well as the account you're trying to recover.

"It's as if the credit card company is applying brand-new underwriting to your account," Ulzheimer says.

If you're trying to get a higher credit line, Bistritz-Balkan says you should realize that "some lenders have automatic line adjustment strategy programs that will review your behavior with them and increase or decrease your line of credit. If they decrease your line, they should provide an adverse action notice."

While it's good to communicate with the issuer, don't think that alone will be enough for you to get the account back to its previous terms.

Ulzheimer says, "It's not necessarily a discussion; it's more of a performance-based issue."

Bistritz-Balkan says if you have made on-time payments for a year or more to your card after the suspension was lifted and "feel that your credit limit or interest rate is still not appropriate, this could be a time to shop around for the best fit for your needs."

Realize, though, that the payment history that already occurred with the credit card company will not change because you close the account, Bistritz-Balkan says. "That should not be the primary reason you change providers."

What if Your Credit Card Account Is Closed?

The suspension is a way for card issuers to give you time to catch up, but there is no guarantee they won't still decide to close your account.

For example, if you miss more payments, "you can probably kiss your account goodbye," Ulzheimer says. In that case, the suspension "can be permanent. If they want to close your account, they can close your account. They just have to give a reason why they did it."

If you don't make an effort to keep up with monthly payments at all during the suspension, your account might be canceled by a credit grantor after about four or five months of missed payments.

Once the account is closed, make sure to contact the company to get the reason why. You might have a chance to state your case and get the decision reversed or, at least, learn from the mistakes you made.

Regardless, you still have options. For example, if your card was closed after a DMP was completed, you could try to get a new credit card with a different issuer, says Peter Klipa, senior vice president of creditor relations for the National Foundation for Credit Counseling.

"This may be difficult at first, but a new auto loan is good way to get started," Klipa says. "If credit cards have all been closed, you can improve your credit mix by adding a secured credit card. This option carries less risk for credit card companies but is a way to start to build back your credit."

With a secured credit card, you can make purchases and pay them off with a limited credit line so you are much less likely to get overextended.

[Read: Best Starter Credit Cards for Building Credit.]

How to Help Your Credit Score

Getting a copy of your free annual credit report is one of the most important actions to take after your credit card account is suspended or closed.

First, you'll want to see how the account action is portrayed on the report and also pay other outstanding debts on the report so your credit utilization rate is as low as possible.

The utilization rate indicates how much of your available credit you're using and is a vital part of your credit score. It's suggested that you use 30% or less of your credit line to keep the utilization score as high as possible.

However, if your credit card account was suspended or closed due to delinquency, you'll have an uphill battle to get your score climbing again. Closed accounts can stay on your report for up to 10 years, and more severe credit actions -- such as charge-offs and collection actions -- are on for about seven years.

Delinquency damages the most important factor in credit scores: payment history, which can affect more than one-third of your credit score.

This is why it's essential to add positive credit information to your credit report as soon as possible. Regular monthly payments to all of your cards can do this.

"Now, more than ever, is the right time to be diligent about checking your credit reports," Bistritz-Balkan says. "Not only can you spot signs of identity theft, but as you are working to demonstrate creditworthiness, it can help you keep track of how you're doing by providing you with a snapshot of your account activity."

More From US News & World Report