You might think closing a credit card or other account might remove it from your credit report automatically. But while closing an account prevents you from using it, that doesn’t mean it disappears from your…
You might think closing a credit card or other account might remove it from your credit report automatically. But while closing an account prevents you from using it, that doesn’t mean it disappears from your credit history.
Credit reports include information for both open and closed accounts. As long as they stay on your credit report, closed accounts can continue to impact your credit score.
If you’d like to remove a closed account from your credit report, you can contact the credit bureaus to remove inaccurate information, ask the creditor to remove it or just wait it out.
How Closed Accounts Affect Your Credit
Credit scores are based on several factors: your payment history, how much of your available credit you’re using, the age of your credit accounts, the types of credit you’re using and how often you apply for new credit. The impact that a closed account has on your credit depends largely on the type of account involved and whether you still owe a balance.
With a credit card, “closing an account causes you to lose the available balance on that card,” says Rod Griffin, director of public education at Experian. “That results in an increase in your utilization rate, or balance-to-limit ratio.”
That could hurt your credit score, as a higher rate of use in relation to your credit limit is a sign of risk, Griffin says.
Installment loans are a little different, since they aren’t revolving accounts like credit cards and don’t have an effect on your credit utilization ratio. Once a loan is paid in full and the account is closed, you lose the benefit of continuing to make regular on-time payments that have a positive impact on your credit score, but the payment history remains.
Regardless of whether it’s a loan or credit card, a closed account can still affect your score. According to Equifax, closed accounts with derogatory marks such as late or missed payments, collections and charge-offs will stay on your credit report for around seven years.
Closed accounts with a “paid as agreed” status, on the other hand, can stay on your credit report for up to 10 years from the date the lender reported it as closed.
When Should You Remove a Closed Account From Your Credit Report?
There are different situations when it makes sense to remove a closed account from your credit. What you must weigh in the balance are the potential credit score implications.
“If the account has negative or derogatory information, then the closed account is likely harmful to your credit, and removing it will probably increase your credit score,” says David Chami, managing partner for the Price Law Group, a debt relief agency. “If the account is one with a positive history, removing it is probably not in your best interest.”
Josh Rubin, owner and CEO of Sacramento, California-based marketing firm Post Modern Marketing, found out firsthand how removing closed accounts can impact credit. In August 2018, he paid off his remaining $15,000 in student loan debt in full. When he checked his credit in September, his score had dropped from the high-700 range to 640.
After he paid off the loan, his servicer not only closed his account, but also removed the entire payment history from his credit report. The servicer was within its rights, as creditors aren’t required by law to report borrowers’ account information to the credit bureaus. But it was Rubin who paid the price.
“I thought it wouldn’t be bad since I’m in less debt now and should technically be less risky,” he says. “Apparently, that’s now how credit rating agencies see it; they see I’ve now got a shorter history and only a couple of lines of credit, so I’m more risky to them.”
In Rubin’s case, he didn’t ask for the closed loan account to be removed from his credit, but his situation serves as an example of why removing accounts from your report is something to approach with caution. Losing the positive payment history associated with that account hurt his score in a big way. Rubin says he’s now in the process of getting the servicer to restore his payment history in the hopes that his credit rating will recover.
If you have a closed account with a positive history, you may be better off leaving it alone than trying to get it removed. On the other hand, you may be hoping that removing a negative closed account from your report will boost your score. In that case, you need to know what your options are.
Removing a Closed Account from Your Credit Report
There are a few steps you can take to remove closed accounts from your credit report. If one doesn’t work, move on to the next.
— Dispute inaccuracies.
— Write a goodwill letter.
— Wait it out.
Step one: Dispute inaccuracies.
“The Fair Credit Reporting Act only requires credit reporting agencies to correct or delete inaccurate information,” Chami says. And even then, it doesn’t happen automatically. You must first successfully dispute the information in question to have it removed or updated.
All three credit bureaus — Equifax, Experian and TransUnion — allow consumers to initiate disputes online or by certified mail. When initiating a dispute, you’ll need to provide certain information to the credit bureau, including:
— Your name
— Account number
— Nature of the information you’re disputing
— Supporting documentation to show why the dispute is valid
From there, the credit bureau must investigate your claim with the creditor or lender in question, usually within 30 days, and notify you in writing of its findings. If the disputed information is inaccurate, by law it has to be removed or corrected. Once an error is removed from your credit report, the credit bureau can’t add it back in unless the lender or creditor proves that it was accurate.
That process can take care of negative information related to errors, but it may not remove a closed account from your credit report entirely. And if you’re seeking a removal based solely on negative activity, that’s likely to be a dead end if the information is accurate. There are, however, some other paths you can pursue to get a closed account removed.
Step two: Write a goodwill letter.
A goodwill letter is essentially a polite way of asking a creditor or lender to remove a closed account’s history from your credit report. It’s not the same as a dispute, since presumably you’re asking for the removal of negative information without contesting its accuracy. And the creditor has no legal obligation to remove accurate information.
Writing a goodwill letter may be more effective when there are extenuating circumstances — for example, if you defaulted on a credit card or loan because a serious illness or injury kept you out of work for an extended period. In addition to considering forces that were beyond your control, creditors may also weigh your previous payment history and whether you’ve made any good faith attempts to pay since you defaulted.
Some debt collectors will consider requests to pay for deletion of the collection account when consumers make a full payment or settle for less than the full amount. But pay-for-delete agreements are problematic because debt collectors aren’t required to remove the account even if you pay them to do so, and even if the collection account is removed, the original account with a derogatory history will remain.
For example, if you stopped paying a credit card bill for a year and the issuer sent your account to a debt collector, you could pay the debt collector to remove the account. Even if it follows through with the agreement, only the debt collector’s account would disappear. The original issuer account would still remain and continue to reflect your year of missed payments.
Step three: Wait it out.
If the negative information you want removed is accurate and the creditor isn’t interested in removing it, you may be out of options. But closed accounts don’t last forever.
Depending on how patient you can be, you could just wait for a closed account to fall off your credit report. In the case of negative account information, it’s important to understand the timing.
“Any negative information in the payment history will be deleted seven years from the original delinquency date of the debt,” Griffin says.
Essentially, the clock starts ticking on negative items when they’re first reported on your credit, not when the account was closed. Depending on how old the account is, it may be close to being removed from your report anyway, in which case you could just bide your time. Reviewing your credit report can give you an idea of when closed accounts may be removed.
“We recommend consumers check their credit reports a few times per year to check for accuracy and potential identity theft and fraud,” Griffin says.
You can get your report from each of the three credit bureaus for free once per year through AnnualCreditReport.com. Enrolling in free credit monitoring services can help you track credit accounts and your credit score from month to month.
Practice Good Credit Habits Going Forward
If you had a credit account closed because of late payments or default, getting it removed from your credit report is a step in the right direction. From there, you can focus on practicing credit habits that are designed to promote a positive score, including:
— Keeping credit card and other revolving debt balances low
— Paying off debt balances
— Keeping unused credit accounts open
— Limiting how often you apply for new lines of credit
One final tip: If you’re struggling to keep up with credit card or loan payments, don’t keep creditors in the dark. Reach out to them at the first sign of trouble to see if they offer hardship payment plans or deferments so you can avoid negative information on your credit report.