Most Americans struggle today making ends meet, finding ways to maintain a quality of life they have become
accustomed to while still cutting costs. When money is tight most people find themselves cutting on the things that they consider extras; such as entertainment or family vacations.
To have or not to have a credit card is one of the issues that face many people today. This decision has taken another turn. It seems that recently consumers who have dormant or inactive credit card accounts are being informed that their account has or will be closed due to inactivity.
To Use or Not to Use
The credit card industry is in flux and has been for some time now. Balancing the use of the credit card, while still cutting costs and saving money is one of the games that most people play throughout life. One way that many people have opted to save a few bucks is by limiting the use of the plastic. Many people feel secure just by having a credit card, to use in case of emergencies. That no balance, emergency credit card that once offered security has actually started to present problems. Consumers who have held a zero balance are forced to either spend or risk loosing the privilege and security of being a cardholder. Consumers, however, should resist card issuers attempts to close their card accounts for a variety of reasons.
The Consumer Risk
Credit card companies are now on a mission to close those inactive consumer cards due to non-use, no outstanding balance, or low balances; regardless of credit history. In the past consumer cards have been closed without notice or discussion with the cardholder. New legislation requires credit card lenders to give consumers advance notice for card closures. This does provide a little bit of protection for cardholders who do wish to keep the account open.
What the legislation doesn’t indicate if the consumers will be mandated to carry a balance on the card that was pending closure for inactivity. This promotes the cycle of debt by forcing responsible consumers to spend unnecessarily just to have access to credit. It seems counterproductive, but with each decision comes consequences. The choice becomes the consumers to decide which option is best for them; to keep a card or to spend unnecessarily just to keep it. The choices either way can be expensive.
One of the risks to consumers is what the closing of an account does to a credit score. What is this closure listed as and how is this documented on a credit report? The other risk is the security factor. Not having a credit card, especially for small business owners can make or break business dealings. For those in the position of relying on the credit card for emergencies or unexpected medical or business needs, having their account cancelled can mean devastation for the future should something unforeseen arise. The dormant account is a type of insurance policy for some consumers; it protects them when they need it while not costing them a fortune.
The Creditor Risk
It seems that card issuers are targeting those consumers’ accounts that are dormant or have low activity for reasons of self-preservation. Each year, reports indicate that credit card companies write off billions of dollars in bad card loans, unpaid credit card balances. This continues to be the case as of late 2009 reports. The credit card companies are in business to make money, not loose it.
The fact is that keeping active but dormant credit card accounts are a cost for the credit card industry to maintain. The industry still has to manage the account, send bills and incur administrative costs; all for a card that is not making them any money. The new regulations have prevented many of the practices that earned the credit card lenders money in the past; such as increasing consumer charges and adding annual fees. The absence of these fees is contributing to the loss of money associated with keeping unused accounts open. Inactive accounts that remain open are also a liability for credit card holders. Credit card companies strive to have the liability be far less than the assets. Open cards increases risk for lenders.
Capital One is just one of several credit card companies that have been reported to have started the process of closing accounts and slashing the credit limits of dormant accounts as far back in 2008 at the beginning of the signs of tough economic times ahead. This practice has continued through to present in full force and can be expected to continue forcing consumers to make decisions about how and when to use the plastic.
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