by Joseph Kenny | 04/24/09

If you are like most Americans, you probably rely heavily on your credit card not only for larger purchases but also for day to day expenses. Credit cards are a modern convenience that has become an indispensable part of the financial landscape, but is there a way that you could lose your credit card? Could you lose all of your credit cards? This is becoming a real possibility as credit card companies change their tactics to respond to the current economic climate.

The Current Economic Climate

Times are tough. Everyone knows that. Many are responding by attempting to be more responsible with the money that they do have and that means watching their credit card spending.

You would think that this would be a good thing. Consumers are watching what they spend their money on and do not use their credit cards as much. With more money going out for expenses than coming in as income, this seems like the smartest thing to do. It is not, however the best thing for credit card companies.

Losing Credit Cards?

Credit card accounts are being reviewed by credit card companies after periods of inactivity. Not only are they being reviewed but if accounts are not experiencing enough activity then in many cases they are being closed. Of course, the companies are required to notify card holders before they make any such move, but they do not need to notify cardholders of the closing of accounts in advance.

In 2008 alone, millions of accounts were closed due to this lack of activity. It is often explained as being a necessary move to reduce risk both for the cardholders and for the credit card companies. For the cardholders, it can protect from credit cards being used in a fraudulent manner. This serves as a protective measure for the credit card companies as well. Any card that is active and has a large credit limit poses a risk that could end up hurting both the cardholder and the credit card company. Closing the account may actually serve to protect the interests of both.

The amount of credit that a credit card company issues to cardholders can be a liability. By reducing the amount of credit that they are extending by closing these inactive accounts, the companies are trying to keep their liabilities from being greater than their assets. Accounts that are not being used also cost the company that maintains the account even if they are not seeing any profit from interest or other fees.

The Effect On Your Credit Score

The loss of a credit card can have another serious consequence. Aside from the reduction in available credit for an individual, a closed account can have a drastic impact on your credit score.

It all begins with what is known as your credit utilization ratio. This is the total amount of debt that you have as compared to the whole of your available credit. This number makes up about 30% of your overall credit score.

An account closing can make your available credit plummet and throw these figures into a state of disarray. You credit may drop as much as a couple dozen point in one swift move. In the end, your smart money management could adversely affect your credit score.

Credit cards now come with a caveat that if you do not spend enough then you may not be able to keep the cards you have. You are not protected even if you have been a faithful cardholder for years because these accounts are closed based on inactivity or insufficient activity. Apparently, credit cards now adhere to the old adage that says use it or lose it.