A credit card company can choose to close a card account at its discretion after evaluating the account. One common reason for closure is delinquency (late payments). If card closure occurs, it is important to ask about the status of the account and determine whether this will cause collections activity.
Account Closure
If a credit card company decides to close an account, the cardholder can no longer use his card. The creditor removes the available limit, and the used balance remains due. The account becomes similar to a standard personal loan in that the consumer must continue to make regular monthly payments until the balance is zero. In most cases, the rest of the credit card agreement stays in place as well.
Collections
A credit card account typically is sent to a collections company if the cardholder has not made a payment in 120 to 180 days, although the decision regarding the time line lies with the creditor. The creditor is likely to close the account to prevent further charges even before payments are 120 days late. When an account officially is sent to collections, the creditor writes off the debt and sells it to the collections agency.
Considerations
It is not always the case that an account closed as a result of delinquency goes to collections. In some cases, the creditor may close the account because of a history of late payments, even if the consumer was only a few days late each time. In this case, the account is closed, but the delinquency is not egregious enough for the creditor to write it off and sell it to a collections agency.
Call for Account Status
If the credit card company closes the account, the credit cardholder should immediately call to inquire about the current status of the account. If the creditor refers the holder to another company for information, it is likely in collections. As soon as a credit card payment is more than 30 days late, the in-house staff of the credit card company reports the information to credit bureaus and may start to make collections calls.
