How Long Do Closed Accounts Stay On Your Credit Report?
It can be alarming to see a nearly decade-old closed account on your credit report, but it's perfectly normal.
Contributing Writer at Tally
March 11, 2022
Your credit report contains a broad range of information surrounding your finances and how you manage credit. With the depth of data it offers, it's easy to get a little overwhelmed. This is especially true when you see closed accounts there.
Why are these closed accounts showing, and how long do closed accounts stay on your credit report? How do these accounts impact your credit score? We cover all that and more below.
So, how long do closed accounts stay on your credit report?
Credit accounts can close in one of two ways:
By the creditor
By the account holder
Generally, when a creditor closes an account, it's because it was an installment loan with a fixed end date, and you've met that date and paid the debt in full. However, creditors may also close your account due to:
Account holders can also request to close accounts, but they can generally only do so with lines of credit, credit cards and other revolving debts.
To close the account, it must be in good standing and usually must have a $0 balance — some creditors may permit you to close an account with a balance, but it varies by company.
What do closed accounts look like on your credit report?
Where they appear on your credit report depends on which report. Generally, there’s a section specifically for closed accounts. Here, your credit report will list all your closed accounts.
These closed accounts look similar to other accounts on your report. They’ll include:
Highest credit limit
Account opening date
The big difference is your closed accounts will include a closure date and the reason for closing.
How does a closed account affect your credit score?
A closed credit account can impact your credit score, but how it impacts your score depends on a few variables.
Closed in bad standing
This is likely one of the worst things that can happen to your credit score: A creditor closes your account due to delinquency or frequent late payments. This means the account is now a charge off and has likely gone to collections or was sold to a third-party collection agency.
As long as this closed account with derogatory marks remains on your credit report, your credit score can take a negative hit due to the poor payment history. The impact of this negative information fades with time, but since payment history is the most important FICO credit scoring factor at 35%, the impact can be significant.
You can help yourself by paying off the collections account, as many new scoring models exclude paid-off debt collectors. However, some lenders use older scoring models, so this isn't a sure-fire fix.
Closed in good standing
If an account is closed simply due to inactivity or because you requested to close it, but it's in good standing because you always made on-time payments, the positive payment history will help you as long as it remains on your report.
However, there are a few caveats.
Length of credit history
Length of credit history accounts for 15% of your FICO credit score. This variable looks at the following:
Average age of your credit accounts
Age of your oldest account
Age of your youngest account
Activity on all your accounts
It determines a credit age, and the higher the age, the more positive impact it has on your score. If your age is low, it can negatively impact your credit score.
If you or a creditor closes an old account, this could significantly lower your credit age, thereby lowering your credit score. This is why you want to use your oldest credit cards now and again to keep them active.
Your credit utilization rate is a large component of the amounts owed variable, which makes up 30% of your FICO Score. Your credit utilization is the percentage of your credit limit you've used across all your revolving debts. For example, if you have two credit cards with $500 limits and charge $250 on one card, you now have a 25% credit utilization rate ($250 / $1,000 = 0.25).
The lower your credit utilization, the more positively it impacts your credit score. The higher your utilization rate, the more it can hurt your credit score.
Suppose you or your credit card issuer closes a credit card account with a high credit limit, and you carry a credit card debt balance on another card. In that case, there's a good chance your credit utilization rate will increase and harm your credit score. This is why you should periodically use your high-limit credit cards to keep them active and prevent the creditor from closing the account.
What are some reasons to consider closing an account?
Now that you know how long closed accounts stay on your credit report and how they can impact your credit score, let's explore some valid reasons for closing an account.
Some credit cards, typically those with robust benefits, charge an annual fee. On average, this fee runs close to $110. If you use the benefits the card offers, that annual fee could be worth it. However, if you use few or none of the benefits, it's likely not worthwhile and may be a credit card you'd consider closing.
Before closing it, consider its credit limit and how long you've had the account. If it's an older account or has a high credit limit, closing it may cause a dip in your credit score.
Poor customer service
If you're not treated with respect as a customer when calling in or using online chat for help, this may not be the company you want to deal with. This is another valid reason to close an account, but weigh out the negative impact it could have on your credit score before doing so.
Of course, if you spot fraudulent accounts on your credit report, you want to close them immediately. If you catch the identity theft quickly enough, they should have no bearing on your credit score other than the inquiry when the fraudster initially opened the account.
Where can I view my credit report?
There's a wide range of places to view your credit report. The easiest way is online through free credit report websites, such as Credit Karma or Credit Sesame. These sites give you free access to the details on your credit report, albeit not from all three of the major credit bureaus — Equifax, TransUnion and Experian.
If you want to see the data from all three credit bureaus, you can go to each credit reporting agency's website and sign up for their credit report and score offer. Some offer a free option for its credit report, but you have to purchase access to the other two bureau’s reports.
You can also get all three credit reports free once per year at AnnualCreditReport.com.
And don't worry, checking your credit doesn’t count as a hard inquiry and won’t harm your credit.
Closed accounts can still impact your credit
A creditor can continue reporting a closed account for up to 10 years if it was in good standing. If it was a negative account due to delinquency, such as late payments, repossession or foreclosure, it can remain on your report for up to seven years. In both cases, these closed accounts can impact your credit score the entire time they're on your credit report.
Closed accounts can also impact your credit score in other ways, including reducing your credit age and increasing your credit utilization rate. In both cases, these may harm your credit score, which is why it's critical to keep your accounts open unless there’s a good reason to close them, such as avoiding fees or poor customer service.
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