The Impact of Closed Accounts on Your Credit Score

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Understanding Closed Accounts on Your Credit Report

A closed account on your credit report typically refers to a credit card, loan, or another form of credit that is no longer active for new charges. This can happen either by the cardholder’s choice or the issuer’s decision. Depending on the closure circumstances, a closed account can remain on your credit report for up to 10 years.

What Does “Closed Account” Mean on Your Credit Report?

Closed accounts are not always fully paid off. They indicate that you once had a credit account, but it is no longer valid for making charges. Reasons for closure can include:

• Closing a credit card after receiving a welcome bonus.
• Deciding to close the account for personal reasons.
• Issuer closing the account due to infrequent use.
• Issuer closing the account due to missed payments or exceeding credit limits.
• Issuer closing the account due to a significant drop in your credit score.

It’s important to note that closing an account does not erase its payment history. Late payments will still appear on your credit report, although their impact will lessen over time. Additionally, closing an account does not eliminate any outstanding balance, which may be transferred to a collection agency.

How Long Do Closed Accounts Stay on Your Credit Report?

Closed accounts in good standing, meaning no payments were 30 days late, can stay on your credit report for up to 10 years. If there were credit missteps before closing the account, the negative information will fall off after seven years, but the account itself can remain for up to 10 years, depending on its status at closure.

Are Closed Accounts on Your Credit Report Bad?

The impact of a closed account on your credit score depends on its payment history. A positive payment history can help maintain good credit scores for up to 10 years, even if the account is closed. However, if there were late payments, they could be reported for seven years, affecting your credit score.

Closing an account can also potentially harm your credit score. Factors influencing your credit score include:

• Amount owed and credit utilization relative to credit limits.
• Length of credit history and average age of credit accounts.
• Credit mix, including revolving credit and installment debt.
• Recent applications for new credit.

Closing an account, especially an older one or one with a high credit limit, can negatively impact your credit score. It may also harm your score if it leaves you without revolving credit or if you apply for new credit to replace the closed account.

How to Remove Closed Accounts From Your Credit Report

You cannot remove a closed account from your credit report if the information is accurate and timely. However, if you believe the information is incorrect or outdated, you can dispute it with the credit bureaus—Experian, TransUnion, or Equifax. Possible scenarios for removal include:

• Requesting the creditor to remove the account (though they are not obligated to do so).
• Disputing the account information with each credit bureau that reports it.
• Waiting for the account or negative history to naturally fall off over time.

The Bottom Line

A closed account on your credit report can indirectly affect your credit score. If closing an account increases your credit utilization or affects your credit mix, it can harm your score. However, a closed account with a positive payment history can continue to benefit your credit score for up to 10 years.

To stay informed about your credit, regularly check your credit reports. Experian offers free credit monitoring, along with free access to your credit reports and scores. You can receive alerts when changes occur, which is especially useful when building or rebuilding your credit.

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