Discover and Capital One cancel dormant accounts

12.22.08
By Sarah Beldo

Discover Financial Services and Capital One have become the latest credit card providers to crack down on customers who have not used their cards in a while, according to reports.

At Discover, around 3 million inactive accounts have been cancelled and there are roughly 2 million more set for the chopping block, the firm's CEO David Nelms told Bloomberg.

"Most of the accounts haven't been used for years. We think it's a responsible move," he said. Capital One has acknowledged taking similar measures.

At first it might be difficult to see what the problem is. After all, if people aren't using their cards then they can't possibly default on a payment, right?

But the credit card companies see it somewhat differently. For the past several months, lenders have been looking at a number of ways to reduce their exposure to risk.

While some of the more obvious ways include tightening the criteria on who can obtain a new account and reducing the credit limit of those who may be deemed risky, borrowers who have never made a late payment have been affected as well.

The logic behind canceling unused accounts is that people who have not yet had to rely on a particular card might dig it up again when confronted by financial problems and run up credit card debt.

Basically, the issuers are trying to prevent defaults before they happen. Capital One, for example, saw the number of accounts paid more than 30 days late rise to 4.7 percent in November - and experts say the figures could increase further in the coming months.

The message to cardholders is this: if you want to help make sure your lesser-used cards don't get canceled, it may be a good idea to use them on a regular basis - maybe once a month - for small purchases.

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Credit card issuers are closing inactive accounts.