You might think that if you close a loan or credit card account it will no longer affect your credit report, but they can actually stay on your credit report for up to 10 years. During this time period, these accounts can help or hurt your credit score, depending on a number of factors.
Here’s what you should know about closing loan and credit card accounts from your credit report.
Key Points
• Closed credit accounts can stay on your credit report for up to 10 years, impacting your score.
• On-time payments on closed accounts positively affect your credit history.
• Late payments on closed accounts can negatively impact your credit history for seven to 10 years.
• Closing accounts can affect your credit utilization rate and credit mix, influencing your credit score.
• Removing closed accounts with poor payment history or fraudulent activity can build your credit profile.
How Closed Accounts Affect Your Credit
Closed credit accounts and loans can have varying effects on your credit, some positive and some negative, due to the factors that make up your credit rating. Here’s a closer look at three of those that are significant in this situation: your credit history, your credit utilization rate, and your credit mix.
Your Credit History
A closed account on which you made on-time payments will help your credit score by building your credit history. The effect will be less than if it were an open account, but it would be a positive factor nonetheless, since it shows that you can manage credit responsibly.
However, if you made late payments on an account that is now closed, the negative impact may linger in your credit history for seven years and up to 10 years if you file for bankruptcy.
Longevity is a factor on your credit report. Credit scoring systems reward borrowers with a longer history of managing debt and repayment. That means that if you close an account and seven years pass, you’ll lose any benefit of having had that account. It won’t make a significant change, but it is another factor to be aware of.
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Your Credit Utilization Rate
Part of your credit rating is based on how much debt or credit you already have. Creditors look at your credit utilization ratio, which is how much credit you have available to you versus how much you actually use. The best case scenario is to not use more than 10% of your accessible credit; otherwise, no more than 30% is a good move.
Two examples:
• Say you have a $10,000 credit limit on your credit card, you might want to limit your balance to $1,000. That’s 10%.
• Otherwise, keeping your balance to no more than $3,000 would be 30%, the upper end of what’s considered a good credit utilization ratio.
If you close a loan or a credit card account, that might reduce the amount of credit available to you, which will increase your utilization rate. If you open a credit card or take out a loan, that will increase the amount of credit available to you, thereby decreasing your utilization rate.
Your Credit Mix
Credit scoring systems, such as the FICO® Score and VantageScore® look at the types of loans you have and how you manage them. These systems reward a mix of loan types, such as installment loans (auto loans and mortgages), and revolving accounts such as credit cards. Eliminating a credit card account or other type of loan (such as when it is closed and eventually drops off your report) could limit your credit mix, and that could negatively impact your credit score. Worth noting though: Credit mix counts for 10% of your score vs. 35% for your payment history (meaning, how successfully you make payments on time).
Why Do Closed Accounts Stay on Your Credit Report?
Both closed and open accounts can contribute to your credit rating as they stay on your credit report. That’s because the credit agencies can gain a fuller picture of your risk as a borrower the more information they have.
Monitoring and understanding your credit report (perhaps with a credit score monitoring app; your bank may offer this) is an important part of your financial wellness.
When to Remove a Closed Account from Your Credit Report
If possible, remove a closed account from your credit report if it has a poor payment history. Also, remove any accounts that are found to be fraudulent. If an account shows that you made regular, on-time payments, don’t remove it because it will be helping your score.
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How to Remove a Closed Account from Your Credit Report
A few factors affect your credit score; one of which is your credit history. As noted above, your credit history shows the loans and credit cards you have obtained in the past seven to 10 years, along with your repayment patterns. Even closed accounts are part of that narrative for the stated period of time.
That said, there may be a way to remove a closed account from your credit report, which you might want to do if it is having a negative effect. Here are some options.
1. File a Dispute if There Is an Error on Your Credit Report
It might be that you notice a fraudulent account when you check your credit report. If that is the case, you can remove the record by submitting a dispute in writing with each of the three credit bureaus (Equifax®, Experian®, and TransUnion®). You must include supporting documents. The bureaus will investigate your complaint and update your credit score if there is fraudulent data.
2. Contact the Creditor and Pursue a Goodwill Deletion
Another way to remove a closed account from your credit report is to directly contact the creditor that’s involved and ask them to remove the account from your credit report. (This is sometimes known as a goodwill letter or goodwill request.) The creditor will have to contact the credit bureau(s) directly to do so. You will be more successful if you have a positive credit history and relationship with the creditor.
3. Wait It Out
In time, a closed account will no longer be reflected on your credit report, but it might take seven to 10 years. The good news is that the accounts that stay the longest are usually ones that you closed in good standing, and these will positively influence your credit score.
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What Does “Account Closed” Mean on a Credit Report?
“Account closed” on your credit report indicates an account that is no longer active. There can be several reasons for an account being closed.
• Perhaps it was an installment loan that you paid off.
• You might have opened a credit card account and then decided to close it (maybe you weren’t using it much).
• The creditor closed it, which could be positive (you paid off a loan) or negative (you weren’t paying your bills in a timely manner).
These are typical scenarios that lead to seeing “account closed” on your credit report.
How Long Will a Paid-off Account Take to Show up on Your Report?
Lenders usually update the credit report agencies with closed account information at the end of a billing cycle. Thus, it could take one or two months before a paid-off account is reflected on your credit report.
How Long Does a Closed Account Stay on My Credit Report?
As noted above, how long closed accounts stay on your credit report can vary.
• Accounts closed in good standing (paid on time and in full) can remain on your credit report for up to 10 years.
• Accounts closed due to nonpayment (these include collection accounts, some bankruptcies, and debt settlement) remain on your credit reports for seven years from the first missed payment or from being turned over to collections. The exception is Chapter 7 bankruptcy, which usually stays on your credit report for 10 years.
Practice Good Credit Habits Going Forward
Here’s advice that can help you manage existing credit card and loan accounts well.
• First, it’s always wise to take control of your budget. Whether you do that with the 50/30/20 budget rule or a financial tracking app, keeping on top of your income, your spending, and your saving can be a money-smart move.
• Check your credit score regularly to make sure there is no fraudulent activity. You might aim for an annual review.
• Extend your credit history as much as you can with accounts that are and have been in good standing. This means it’s probably in your best interest to occasionally use a credit card account and keep it in good shape vs. closing it because you don’t use it often. This can reduce your available credit and possibly lower your debt utilization ratio.
One good idea can be to use a credit card for predictable expenses, such as streaming services, and set up automatic payments. That way, you will be paying a set amount each month and building a positive credit history.
These moves can help you keep your financial profile in good shape.
The Takeaway
Closed credit accounts will stay with you for a long time, seven to 10 years usually. Keep accounts that you have owned for a long time open and in good standing whenever possible. If you have fraudulent accounts on your credit history or ones that were not managed well, you might take steps to have them removed and possibly build your credit profile.
Keeping tabs on your credit score and your budget can be easy with the right tools, like those SoFi offers.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
FAQ
Can I get closed accounts removed from my credit report?
You can remove a closed account from your credit report if you suspect it is fraudulent by filing a dispute with the three credit bureaus. You can also contact a creditor directly and ask them to remove a closed account. However, they are under no obligation to comply with this kind of request for a “goodwill” deletion. Alternatively, you can wait for seven to 10 years, after which closed accounts will fall off your credit history.
What is the 609 loophole?
The 609 loophole is a tactic that some people think will remove bad debt history from their credit reports. A section of the Fair Credit Reporting Act states that you can write a letter to gain documentation on what you may believe is an incorrect entry in your credit history. The 609 letter theory is that if a credit bureau cannot produce a piece of information, such as the original signed copy of your credit application, they have to remove the disputed item because it’s unverifiable. However, these steps are not the same as a dispute. Also, if you have legitimate debt, even without this documentation, the debt may remain. In other words, this process is unlikely to provide a shortcut to building your credit.
How long before a debt is uncollectible?
At which point a debt can no longer be collectible varies based on the type of debt and the state you live in. It is often between three and six years, but it could be as long as 20 years. After the statute of limitations that applies, a debt collector can no longer sue you for repayment, though some might still try to collect.
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