When checking your credit report, you might see terms like “canceled by credit grantor” or “account closed by creditor.” You might ask yourself what it means, why it happened, and what you should do next. This notation can indeed be confusing, but understanding its implications is crucial for keeping your credit in good shape.
In this article, we'll explore some common concerns and questions surrounding credit cards closed by creditors—including what “canceled by credit grantor” means and tips on how to bounce back.
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What is a credit grantor?
A credit grantor, also known as a creditor or lender, is an entity that extends (or grants) credit to individuals or businesses. Credit grantor examples include banks, credit card issuers, mortgage lenders, and other financial institutions.
When you borrow money or open a credit card account, you enter into an agreement with the credit grantor to repay the borrowed amount, typically with interest. The credit grantor has the authority to cancel or close your account, which is known as a “creditor-initiated” or “grantor-initiated” account closure. Creditors have the right to close your account under various circumstances.
If you see the phrase “cancel by credit grantor” or “account closed by creditor” on your credit report, it means that your account is closed by the lender—and this decision was made by the creditor, not at your request.
Common reasons for “closed by grantor” notification
Is it bad when a creditor closes your account? Yes, it can hurt your credit score, especially if it was closed due to negative reasons. We’ve compiled some of the most common reasons why a credit grantor closes an account.
Returned or bounced payment
When you see the message “credit card closed due to returned payments,” it means that the payments you made to your credit card issuer were not processed successfully. This can happen for several reasons, such as insufficient funds or issues with your bank account details. As a result, the credit card issuer decides to close your account to mitigate the risk of further payment issues.
Poor payment history
If you consistently miss payments or make late payments, your credit grantor may decide to close your account to mitigate further risk.
Inactivity
Creditors may close accounts that have been inactive for an extended period. This action helps them manage their accounts more efficiently and reduce potential fraud.
High credit utilization
Using a significant portion of your available credit can be seen as a risk factor. If your credit utilization remains high for an extended period, they might close your account to limit their exposure.
Changes in credit policies
Credit grantors periodically review and update their credit policies. If your account no longer meets their criteria, they will cancel you.
Suspected fraud
If the credit grantor detects suspicious activity or potential fraud on your account, they may close it to protect both you and themselves.
How does a cancellation affect your credit score?
The impact of an account closure by a creditor on your credit score depends on several factors, including the overall state of your credit profile.
- Credit utilization ratio: When an account is closed, your overall available credit decreases, which can increase your credit utilization ratio. A higher utilization ratio can negatively impact your credit score, as it suggests you are using a large portion of your available credit.
- Length of credit history: Closed accounts remain on your credit report for up to 10 years if they were in good standing, contributing to the length of your credit history. However, if the account was closed due to negative reasons, it might have a shorter lifespan on your report.
- Impact on credit mix: Having a diverse mix of credit accounts (credit cards, loans, mortgages) is beneficial for your credit score. If the closed account reduces your credit mix, it might negatively affect your score.
- Derogatory remarks: If the account was closed with a derogatory remark (for example, due to missed payments or high utilization), it could further harm your credit score.
Let's salvage this situation: what to do next?
While this can be a setback, there are proactive steps you can take to minimize the impact on your credit score and even turn the situation around.
1. Make timely payments on remaining debts
Even though the account has been closed, your obligation to repay any outstanding debt remains. It’s essential to continue making timely payments on any balances you owe, not just on the closed account but on all your other accounts as well. Late payments can further harm your credit score, so prioritize making payments on time, every time.
2. Monitor your credit report regularly
By keeping an eye on your report, you can quickly identify any errors, unexpected changes, or new derogatory marks that could further damage your credit. You’re entitled to a free credit report annually from each of the three major credit bureaus (Experian, Equifax, and TransUnion), which you can obtain through AnnualCreditReport.com. Consider checking one every few months to stay informed year-round.
3. Reduce your credit utilization ratio
Since a closed account can increase your credit utilization ratio, it’s crucial to take steps to lower this ratio. You can do this by paying down existing credit card balances and avoiding new charges. If possible, request a credit limit increase on your remaining open accounts—just be sure not to use the additional credit, as the goal is to lower your overall utilization percentage.
4. Diversify your credit mix
If the closed account affects the diversity of your credit mix, consider strategically opening a new account. For example, if a credit card was closed, you might look into getting a secured credit card or a small personal loan to maintain a varied credit mix. However, be cautious not to apply for too many new accounts at once, as multiple credit inquiries can lower your score.
5. Dispute errors on your credit report
If you believe the account was closed in error or there’s incorrect information on your credit report, you have the right to dispute it with the credit bureau. Gather any documentation that supports your claim and file a dispute online, by mail, or over the phone. If the investigation finds in your favor, the erroneous information will be corrected or removed from your report, potentially boosting your credit score.
6. Build a positive credit history
This involves consistently making on-time payments, keeping your credit utilization low, and avoiding behaviors that could be seen as risky by creditors. Over time, these actions will help improve your credit score and demonstrate your creditworthiness to future lenders.
7. Consider credit counseling
If you're struggling to manage your debts or understand how to improve your credit score after an account closure, seeking help from a certified credit counselor might be a good idea. These services can offer personalized advice, help you develop a budget, and even assist with debt management plans if needed.
FAQs
Who is my credit grantor?
Your credit grantor is the financial institution or lender that provided you with the credit account. This could be a bank, credit card company, or another type of lender.
If my account shows “canceled by credit grantor,” do I still owe anything?
Yes, you are still responsible for any outstanding balance on the account, even if it is closed by the credit grantor. You need to continue making payments until the debt is fully paid off.
What does “account canceled by credit grantor with derogatory rating” mean?
An account closed by the creditor with a derogatory rating means that the account had negative information, such as late payments or defaults, which led the creditor to close it. This derogatory rating can significantly impact your credit score.
What is a grantor credit?
A grantor credit refers to the credit extended to you by the credit grantor. The terms and conditions of this credit are outlined in the agreement you signed when opening the account.
What is a charge-off?
When you see “charged off as bad debt canceled by credit grantor” on your credit report, it indicates a severe negative status of a credit account. A charge-off occurs when a creditor writes off a debt as a loss on their financial statements. This usually happens after the account has been delinquent for an extended period, typically 180 days (or six months) of non-payment.
The creditor no longer expects to collect the debt and removes it from their active accounts receivable. However, this does not mean that you are no longer responsible for paying the debt.
How do I remove canceled debt from my credit report?
If you believe the account closure was reported in error, you can dispute it with the credit bureaus. You will need to provide evidence to support your claim. If the closure was legitimate, it will remain on your credit report for up to seven years if it has negative information.
Remember, while a closed account can be a setback, it doesn’t have to define your financial future. With careful planning and consistent effort, you can regain control of your credit and continue on the path to financial stability.