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How To Avoid Having Your Credit Cards Closed: These Are The Red Flags That Trigger Financial Reviews And Adverse Action Shutdowns
By Dan -September 3, 2019 4:34

There are lots of stories online of credits cards being closed by the issuer. Typically no reason is given for the closure, which creates lots of frustration. However banks donít close down accounts for no reason.

American Express is known to occasionally perform a financial review. Typically this is triggered by abnormally high spending. They will ask for your tax returns and as long as you provide them you should pass the review. Your credit lines may be reduced if your taxes show significantly less income than you reported when you applied for the card.  You can also try asking if they will accept bank statements instead of your tax return. If you are living at home and are supported by your parents you can ask if they will accept their financial information. If you donít want to provide any information you should just close the accounts yourself so that it doesnít say closed by creditor on your credit report. If you have points you should transfer those to airlines before closing your cards.

Banks can also take adverse action at any time if they feel you are a risky customer. That means they will reduce your credit lines or close your cards.  Some people have successfully been able to get the bank to reconsider and reopen their cards, so itís definitely worth trying to appeal. You can also file a complaint with the CFPB or your stateís attorney general if you feel you were closed down unfairly.

If you are shut down you should give it at least a year before you try opening another account with that bank again. Some banks have longer memories than others, so YMMV (your mileage may vary) on how long you will be blacklisted for.

In most cases you can still transfer out your earned points if you are closed down.

Typically these things can happen when you have several risk factors and the bank decides itís too risky to have you as a customer. Some banks are stricter than others, but here are activities you should try to avoid:

Returned payments
There is no bigger red flag than paying off your credit card bill and having the payment returned due to insufficient funds. The credit card bank looks at this as a sign of a cardholder in financial distress. Autopay is wonderful for avoiding missed payments, but you need to be especially careful that there are sufficient funds in your checking account to cover the balance. A returned payment can cause an immediate closure of all of your credit cards with a bank, or a restriction on getting approved for new cards.
Inactivity
You should try to use your cards at least once per year. After a year of not using your card, banks often close down accounts due to inactivity.
Charging your own credit card.
If you charge your own credit card via your business or a relativeís business you are risking both your credit cards and your ability to process credit card payments.
Swiping your card for others
As I wrote about earlier this year, you should never swipe your card for other people. People involved in that scheme had their cards closed and found themselves in deep debt. If you wouldnít hand over a briefcase full of cash to someone, then donít hand over your credit card or goods that you paid for, that you canít afford to lose.
Allowing credit card application farms to open cards in your name.
As I wrote about in the past, you should run away from ads offering cash to open credit cards in your name. People have had their accounts closed, found themselves in debt, and havenít been paid what they were promised after handing over their social security number. Never give anyone your personal information and never give anyone access to your credit line.
Having a 3rd party pay off a credit card bill or deposit a check into your account.
Pay off your own credit card bills from your own bank account. Donít deposit checks that arenít made out to you.
Failing to pay the annual fee
If you are billed an annual fee and donít pay it, the bank will close down your card.
Not paying your bills on time and/or carrying large balances.
These actions will lower your credit score significantly. If your score has a big drop it can trigger action from other banks besides the one where you had a late bill or carry a large balance with.
Cycling through your credit line multiple times per month
Banks give you a set credit line, which is the maximum risk they want to take on. Some banks will close down your card if you max out your credit line and pay it off multiple times in middle of a billing cycle.
Maxing out your credit lines.
Ideally for your credit score you want your billing statements to close with just a dollar of usage to show that youíre using the card, but using as little of your available credit on any given card as possible. However even if you pay off 99.9% of your bill before the statement closes, banks will not like seeing you use too much of your credit line as it can mean that you are racking up a bill that you wonít pay. Excessive and/or abnormal spend patterns can be a trigger for financial review and adverse action. As with everything in life, moderation is key.
Hitting a new card too hard.
When you get a new card you may be tempted to quickly meet the spend threshold to get the bonus miles. However putting large charges on a new card can cause a financial review, so take things a little slower if possible and avoid erratic spending patterns.
Transferring/Receiving Ultimate Rewards points to/from ineligible receivers.
You can only transfer or receive Chase Ultimate Rewards points between spouses/domestic partners or between co-business owners on a business card. Transferring Chase Ultimate Rewards points to others Chase Ultimate Rewards accounts may result in both the sender and the recipientís cards being closed. You can however safely transfer points directly to an additional userís airline/hotel mileage account.
Having too much total credit.
On the one hand, having a lot of credit is good for your credit score. But if your credit lines are far beyond the income that you report, it can be a red flag.
Excessive refunds.
Refunding too many purchases (or having refunds that exceed total card purchases) is a red flag.
Depositing excessive cash or money orders into a checking account.
Banks donít like to see excessive cash or money order deposits into a checking account as it can look like money laundering. If you do that with a bank that you have a credit card with, it can cause a shutdown of both your checking account and your credit cards.
Suspicious or excessive wires
Banks are very careful these days with wire payments. Itís good practice not to make wire payments from a checking account with a bank that you also have credit card with, as a suspicious wire payment or excessive wire payments can trigger a shutdown of all of your accounts.
Paying for the mistakes of others at your address.
Typically when a bank does a financial review or decides to close accounts, they will go after all accounts located at the same address.

Author Topic: Red Flag Master Thread  (Read 265 times)

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Red Flag Master Thread
« on: December 18, 2019, 02:56:08 PM »
Dan wrote a long post about this in DDMS back in September. But, it's way down in the list and the discussion is basically over there, now so I'll include it as a wiki to revive the conversation.