Watch Out: This 1 Mistake Could Get Your Credit Card Instantly Canceled

No one wants to get a notification that their credit card has been canceled. This isn't a common occurrence -- credit card companies normally want to add customers, not get rid of them. But they can close your card at any time, and there's one payment mistake that could put your account at risk.

If your payment is returned, your card issuer may cancel your card and any other cards you have with it. Here's what can lead to a returned payment and why card issuers are so wary about it.

Why credit card payments are returned

A returned payment is caused by an issue with the bank account used to make the payment. Your credit card issuer isn't able to get the money, so the payment is returned. Here are the most common causes of returned payments:

• There are insufficient funds in the account.
• You changed bank accounts and forgot to update your payment information with your card issuer.
• You entered the incorrect bank account information.

For example, you have automatic payments set up, and your card issuer tries to process a $2,000 credit card payment. But there's only $1,000 in your bank account. That would result in a returned payment.

While auto-pay is a useful feature to avoid missing your credit card payment, it can lead to returned payments if you're not careful. It's still important to keep track of your payment amount and make sure you have enough money in your bank account to cover it.

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What happens after a returned payment

Credit card companies charge a returned payment fee, normally up to $40. That would be bad enough. But in some cases, they'll also decide they don't want to do business with you anymore.

There are many reports online of people who have had their credit cards canceled for returned payments. Card issuers that do this typically cancel all your credit cards with them, not just the one with the returned payment. They also won't approve you for their credit cards in the future.

It may seem extreme, but a returned payment is a red flag for credit card companies. They're risk-averse, and when your payment bounces, they may decide you're not financially stable enough for them.

To be clear, a returned payment doesn't always result in an instant cancellation. It depends on the situation and the card issuer. Your card is more likely to be canceled if:

• You opened it recently. A returned payment in the first six months to a year isn't what card issuers like to see.
• It's not your first returned payment. Your card issuer may give you the benefit of the doubt after one returned payment, but it probably won't if it happens again.
• There are other red flags indicating you could be a high risk. For example, you've missed payments or have been taking on more and more debt.

Stay on top of your credit card payments

You don't want to have any payment issues with your credit cards. Your card issuer can charge you costly fees for any returned payments or missed payments. It can also seriously damage your credit score if your payment is past due for 30 days or longer. And your card issuer could decide to close your cards with it.

The best way to manage your credit cards is to pay in full every month. If you do that, you get all the benefits that the top credit cards offer, and you won't need to pay any interest. If you can't pay in full, make sure to at least pay the minimum. It's normally just a small portion of your total balance, and paying it keeps your account in good standing.