Recently, I received an email from Discover, informing me that they were closing my credit card account due to serious delinquencies and high balances on other accounts. I was surprised to learn that a company could do this. Until then, I had never heard of such a thing.
However, I don't blame Discover for their decision. On paper, I am an at-risk individual, and they likely saw the potential for me to rack up my credit card and not pay it back.
I opened this credit card account for a balance transfer of $3,298.00 for a 24-month 0% interest rate on March 9, 2017. After 24 months, the interest rate was set to be 31.79%. I paid $150 every month until I had paid off the balance. The last activity on this account was on October 18, 2018, when I made my final payment of $218.44.
Here are two insights I gained from this experience:
The first insight is that I took full advantage of the 24-month 0% interest rate. To avoid paying any interest, I divided the total amount by the number of interest-free months and paid off the balance in full. If I had made only the minimum payment, which was $35, I would have paid only $840 and still owed a significant amount at the end of the 24-month period.
The second insight is that the closure of my credit card account changed my debt-to-limit ratio from 56% to 44%. Although I didn't need access to the money, I did need access to the credit. With a lower debt-to-limit ratio, my credit score has been lowered.
Here's the email I received from Discover:
Understanding credit card closure due to delinquencies and high balances is essential to maintaining a good credit history. By taking advantage of balance transfers and managing our debt-to-limit ratio, we can avoid the consequences of delinquencies and high balances on other accounts.
Update: Synchrony Bank also closed down a credit card of mine, see below for the reasons.
Imagine you have a piggy bank where you can put money in and take it out whenever you want. A credit card is like a piggy bank, but it's not real money, and you can use it to buy things now and pay for them later. The bank that gave you the credit card, Discover, looked at how you used your piggy bank and how much you owe to other banks. They found that you owed a lot of money and weren't paying it back on time, so they decided to close your credit card piggy bank. This means you can't use it to buy things anymore. It's important to use credit cards carefully and pay back the money you owe on time so that banks will let you keep using them.
