If a Credit Card Is Closed, Can They Still Charge Interest?

A credit card serves as a financial tool allowing individuals to borrow funds up to a pre-set limit for purchases or cash advances. When a credit card account is closed, it means no new charges can be made. However, interest can indeed continue to be charged on an outstanding balance even after an account is closed.

Interest on Closed Accounts

Closing a credit card account prevents any further transactions, but it does not eliminate the debt already incurred. Any outstanding balance on the account will continue to accrue interest until the full amount is paid. The annual percentage rate (APR) that was in effect for the account remains applicable to this remaining principal balance, just as it did before the account’s closure.

Interest calculations on credit cards commonly use the average daily balance method. This means interest is calculated based on the balance present in the account each day, averaged over the billing cycle, and then multiplied by the card’s daily periodic rate. Even without new purchases, the existing principal amount continues to be subject to daily interest calculation, leading to new interest charges accumulating with each billing period.

A grace period, which allows cardholders to avoid interest on new purchases if the full balance is paid by the due date, generally does not apply to an outstanding balance on a closed account. Grace periods are designed for new spending that is repaid promptly. Once the ability to make new purchases is removed, and a balance remains, interest immediately applies to that pre-existing debt.

Your Obligations After Closure

Even after a credit card account is closed, the cardholder retains the full responsibility for repaying any outstanding balance. This includes the obligation to continue making at least the minimum required payments by their due dates, as outlined in the original cardholder agreement. Consistent and timely payments are necessary to avoid additional penalties and to fulfill the terms of the credit agreement until the balance is fully repaid.

It is important to continue monitoring monthly statements received from the issuer. These statements detail the remaining outstanding balance, any new interest charges, and any applicable fees. Reviewing these statements helps ensure accuracy and provides a clear understanding of the payment progress toward fully settling the debt.

Missing payments can result in significant consequences, even on a closed account. Late payment fees can be assessed. Furthermore, late payments that are 30 days or more past due can be reported to credit bureaus, negatively impacting a cardholder’s credit score. Paying off the entire balance as quickly as possible is advisable to minimize the total amount of interest paid over time and to avoid these potential penalties.

How Account Closure Occurs

A credit card account can be closed in a few different ways, each with distinct implications for future activity but not for existing debt. A cardholder can initiate the closure of their account by contacting the credit card issuer and formally requesting it.

Alternatively, a credit card issuer may close an account without the cardholder’s request or advance notice. Reasons for issuer-initiated closure can include extended periods of account inactivity. Other common reasons involve default on payments, consistently exceeding the credit limit, or a significant decline in the cardholder’s credit score. Changes in the issuer’s own business policies or risk assessments can also lead to account closures.

Regardless of whether the cardholder or the issuer closes the account, the fundamental principle regarding interest on an outstanding balance remains consistent. Any debt that existed at the time of closure will continue to accrue interest according to the original terms of the credit agreement. The mechanism of closure does not alter the obligation to repay the principal and accumulated interest until the balance is fully satisfied.