5 minutes to read Updated on December 15, 2023
Originally published: January 29, 2021.
A closed account will remain on your credit report for seven to ten years, depending on whether it is in good or bad standing.
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When you close a credit card account or loan, it will continue to appear on your credit report for years.
Closing accounts can have both positive and negative effects on your credit score — although it’s better to close the account.
Keeping your accounts open for a longer period of time can help improve your credit score in the long run.
Many people are surprised to learn that a closed credit card account can remain on their credit report for up to 10 years. Closed for nonpayment. A closed account on your credit report can be detrimental to your credit score in the long run, depending on the status of the account.
But there’s one more thing to note. Other impacts you may face when closing a credit card or payday loan account are pretty immediate and may temporarily lower your credit score while the account is closed — regardless of how it was closed. For example, you may notice an increase in your credit utilization ratio — the total amount of credit you have available — and a higher utilization ratio generally means a lower credit score.
Why do closed accounts stay on your credit report for so long?
Credit card companies and other lenders look at your closed accounts as part of your credit history. In the normal course of business, lenders provide information about your spending and payments to credit reporting agencies, which is included in the credit reports used to calculate your credit score. Lenders then use these reports and scores to assess the risk of approving you for a new credit card or other type of loan and adjust your interest rate based on that risk. Information from closed accounts can help lenders gain more insight into a person’s past payment history.
What do closed accounts on your credit report mean?
Having a closed account on your credit report should not worry you if the account was well managed and in good standing at the time of closure. Maintaining a positive credit history and keeping a record of on-time payments will generally help improve your credit score. It will remain on your credit report for up to 10 years.
However, any negative information on your credit report about a closed account can lower your credit score. This can happen, for example, if you’re late on an account payment or if the account is sent to a debt collector.
Impact of Account Closure
Even if you’re closing an account that’s in good standing, it will temporarily increase your credit utilization ratio (as mentioned above), increasing your credit score by 30%. Closing an account can also have two other effects:
- Length of credit history : If you close an old card, you could lose years of experience as an active and responsible borrower. The length of your credit history accounts for 15% of your FICO credit score.
- Multiple types of credit: Lenders prefer borrowers who have revolving credit (like credit cards) and payday credit (like personal loans). There is a type of foreclosure that affects your credit score, which determines 10% of your FICO score.
The good news in most cases is that as long as you continue to make your payments on time, your score will reset within a few months .
Can you remove closed accounts from your credit report?
It can be difficult to find a closed account on your credit report unless the information is correct. According to the National Consumer Law Center, a common mistake is to change the actual age of the debt owed to the agency or to change the number on your report that shows the same debt is about to be collected . 3 If you find that the information on your report is incorrect, you can send a letter to the lender and the credit reporting agency – the Consumer Financial Protection Bureau provides sample letters to help . 4
You may also consider seeking a “good faith” cancellation. You can send a written request to the creditor that reported the information, asking them to remove it because the account is no longer open.
However, lenders are under no obligation to do this. Also, credit bureaus are under no obligation to remove closed accounts. However, if you have a good relationship with your lender, this may be an option worth pursuing.
How to close a credit card account or loan
Sometimes it’s worth closing accounts even if your credit score temporarily drops. Maybe closing the accounts will help you control your spending, or a credit card or loan is causing you to incur fees or interest you don’t want to pay. Credit reporting agencies recommend closing accounts with caution. For example, if you’re looking for a loan for a new home, you may not want to close any accounts beforehand. Closing multiple accounts should be done gradually and in a planned manner to avoid sending negative signals to potential creditors.
To close a credit card account, pay off the account balance first, rather than simply cutting up your card, redeem or transfer any rewards, and then contact your card issuer’s customer service department. Cut it in half. You’ll usually receive confirmation within 10 days. 5 To close a loan account, all you have to do is pay off the loan in full. Your lender will usually contact you by post or email to confirm that the loan has been repaid.
How long do closed accounts stay on my credit report?
How do I remove a canceled debt from my credit report?
Debt cancellation is when a creditor forgives or releases your debt. Usually, this does not affect your credit score unless it is due to bankruptcy .
How can I build credit if I have closed accounts on my credit report?
There are many ways to build credit. Paying your monthly credit card bills in full and on time, paying off debt, and keeping your accounts open can all help build your credit .
Since closed accounts remain on your credit report for a long time, these seemingly insignificant details can become very important if not presented carefully. Credit reports and credit scores do not have a significant impact on your ability to borrow money. He frequently advises insurance companies, landlords and potential employers.
Karen Lynch is a journalist who has covered global business, technology, finance and related public policy issues for more than 30 years.
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