Credit-Card Companies Shut Down Consumers' Lines

Larson, a mechanical engineer in Portland, Ore., opened the account, which had a $7,000 credit limit, nearly eight years ago and hadn't used it in three. He had kept the card in part because it was his oldest account, which helped boost his credit score. Larson now plans to find a new card. (A Capital One spokeswoman said the company has notified some customers whose accounts had seen zero activity over the last three years, but added that it's not a new strategy.)

Issuers closing customers' inactive cards isn't uncommon. But card holders may notice more cutoffs these days. As credit-card delinquencies rise, closing inactive accounts helps companies reduce their exposure to risky credit holders. And delinquencies are a growing problem: In February, the rate was 4.5%, about 16% higher than February 2007 — and the highest it's been since March 2004, according to Moody's (MCO). (Delinquency refers to credit-card payments that are at least one day late.)

Even for people like Larson, who carry little to no outstanding credit-card balances but keep an extra card in case of emergency, an involuntary closure could not only take away a standby line of credit, but negatively affect their credit score as well. To prevent that from happening, consumers need to be proactive about managing their credit, says Linda Sherry, spokeswoman for Consumer Action, a consumer rights organization in San Francisco.

Companies might be increasing their closures now in the wake of new rules proposed by bank regulators that would impose greater restrictions on the credit-card industry. If a card holder is delinquent on an account, the issuer may close it to mitigate further risk, Ulzheimer says, or increase the interest rate. (Under the proposed regulations, credit-card companies would have to give consumers more time to make payments before they're considered overdue, and they'd be limited in raising the interest rates on outstanding balances.)