Photo: Flickr / ashleeappendicitus
Last week, Business Insider’s copy editor, Jill Klausen, was preparing to have expensive dental surgery when she decided to check the credit limit on her Care Credit card. “When I spoke to the person and asked, they said that the card had been closed,” she says. “I said, ‘Closed, why is it closed?’ ‘Well, you haven’t used it in five years.’ But it’s not a card you’re supposed to use everyday. It’s for emergencies and large medical bills.”
For the unfamiliar, Care Credit* works like a layaway plan for health bills. Rather than pay out of pocket upfront, patients (and sometimes pet owners) open a Care Credit card, which comes with zero per cent interest for the first several months. The grace period offers a cushion to pay off those bills until the interest kicks in around the six-month mark.
But even though Care Credit cards have no expiration date and are used infrequently, Klausen still found herself subject to an issue that’s plagued cardholders since the recession: mysteriously closed credit lines.
As Mary Pilon reported in the Wall Street Journal two years ago, closing active accounts is legal, though consumers get annoyed with the hassle. Their only recourse is to open a brand new account, a move that can ding their credit score and a risk not many are willing to take, given how hard credit is to come by these days.
On the issuer’s end, however, “there’s a lot of incentive … to shut down a non-revenue producing card,” says John Ulzheimer, president of SmartCredit.com. They “lose money every month on a card that has a $0 balance and is inactive” because they’re “buying scores and updated credit reports on those consumers and there’s a cost for those. Additionally, there’s a finite amount of money a credit card issuer is willing to extend in the form of available credit.”
So if you’re sitting on a $10,000 credit limit and not using it, the issuer may want to extend that line to someone who will, he says. Finally, there’s always the risk that an unused line of credit will suddenly get maxed out and remain unpaid.
“The only time an issuer would find themselves in hot water for closing an account would be if they violated any of the various Equal Credit Opportunity Act restrictions such as them doing so because of your race, sex, religion, or national origin,” Ulzheimer adds.
Even if you do have a balance, the card is subject to close without warning. “You just can’t charge on it any longer,” although you’re obligated to be responsible and “pay it back under the existing terms,” says Ulzheimer. “They can’t retroactively increase the rate, unless you start missing payments.”
If the closure takes place for credit-related reason, the issuer must send what’s called a “notice of adverse action” in writing, by mail. Usually it comes after the account has been closed. Most issuers will notify cardmembers anyway out of courtesy.
If you find yourself in a predicament like Klausen’s and can’t use your specialty card, consider tapping your emergency fund or putting the expense on a general card. It might be better than having to worry about another piece of plastic, says Ulzheimer. And it may even spare you a headache.
*Care Credit did not immediately respond to a request for comment. We’ll update this post when and if we hear back.