Seeing closed accounts on your credit reports can make you worry that something is wrong. But before you jump to the worst case scenario, keep in mind that creditors close accounts for multiple reasons, and not all of them are bad.
A creditor may close an account because you requested the closing, paid off the account or replaced it with a loan, or refinanced an existing loan. Your account may also be closed for inactivity, late payments, or because the credit bureau made a mistake.
Whatever the reason, it’s important to make sure the information you report is accurate because incorrect information can negatively affect your credit.
Keep reading to learn more about why an account can be closed, what it means, and what you can do about it.
- why closed accounts may be on your credit report
- how a closed account could affect your credit
- what to do if you find a closed account on your credit report
- next steps: how to recover after closing your account
- paid off or refinanced a loan. Paying off a loan usually closes the account. since you have finished paying off your debt, you have fulfilled your obligation and the loan no longer needs to remain active. Refinancing, on the other hand, involves paying off your current loan with a new one, so you may see your old loan closed (and a new one added).
- Your creditor closed it due to inactivity. If you don’t use your card for a long time, your credit card issuer may close your account. To prevent this from happening, you can try keeping a small monthly payment on the accounts you want to keep active.
- Your creditor canceled your account due to delinquency. If you fall behind on your payments, your lender may close your account. Please note that negative payment history on these accounts may remain on your report for seven years.
- The credit bureau made a mistake. If this is the case and you have proof that the account should be listed as open, file a dispute to correct the error.
- No action is required. If you asked the creditor to close the account or paid off a loan, you don’t need to do anything.
- Contact your lender. If you don’t know why the account is listed as closed, the creditor may be able to tell you. If your creditor closed it, you can ask to reopen the account, but you don’t have to. Either way, you know it wasn’t a credit bureau error.
- File a dispute. If the lender didn’t close the account or you disagree with what they report, you can file a dispute with the credit bureaus. You will need to explain in writing what the problem is, provide documentation showing why you believe the information is inaccurate, and mail it to the credit bureau(s). The Federal Trade Commission has detailed instructions on how to file a dispute.
- Getting a Credit Building Loan: If your account was canceled or closed due to late payments, a credit building loan can help you establish a positive payment history and generate credit.
- round up your credit mix: Getting a new loan just to improve your credit mix probably doesn’t make sense. But if you don’t have open revolving accounts, you may want to consider getting a credit card. If you use it sparingly and pay the balance in full each month, you won’t earn interest on your purchases. and will improve your credit mix, possibly helping to improve your scores.
- lowering your revolving account balances: if a revolving account has been closed, reducing your remaining revolving account balances will help lower your credit utilization rate, which can improve your scores of credit.
- Have rent payments reported to credit bureaus: Rent payments are not automatically reported to credit bureaus. but you may be able to add them by signing up for a rent payment service that reports your payment history. timely rent payments can help improve your scores. but keep in mind that not all credit scoring algorithms use them.
why closed accounts may be on your credit report
There are several reasons why an account may be reported as closed. some may need your attention, while the rest are nothing to worry about.
- of credit. accounts closed in good standing will typically remain on your report for 10 years.
how a closed account could affect your credit
The effect of an account closure on your credit depends on multiple factors, including the amount of available credit you’re using, the length of your credit history, the status of the closed account, and which accounts are still open.
Here are some things to keep in mind when closing an account.
Your credit utilization may increase
Your credit utilization ratio is the portion of revolving credit you’re using compared to the amount you have available, usually expressed as a percentage. if you close a revolving account, such as a credit card, the total amount available decreases.
When that happens, your credit utilization could increase, which can lower your credit scores. In general, most experts recommend keeping your rate below 30%.
Closed accounts can stay on your credit reports for up to 10 years
One of the factors used to calculate your credit score is the length of your credit history: the longer, the better. old accounts in good standing stay on your credit reports for up to 10 years, which can increase the average age of your accounts and improve your scores.
But when the account drops after 10 years, the length of your credit history may decrease, which could cause a temporary drop in your scores.
On the other hand, if you have a closed account with a negative history, such as delinquency, derogatory information will in many cases remain on your reports for seven years. while you’re there, it will negatively affect your credit history, but the impact on your scores may lessen over time.
Your credit combination may change
Using a mix of different types of credit can have a positive effect on your credit scores. If an installment account, like a car loan, disappears from your credit report leaving only revolving accounts, or vice versa, your credit score could go down.
what to do if you find a closed account on your credit report
If you have a closed account on your credit report, what you should do next depends on whether you know why it was closed and whether the information is correct.
next steps: how to recover if your account is closed
If you’re worried about your credit scores going down after an account is closed, you might want to consider these ideas.
The right solution for you depends on your personal financial situation. Before you take on new debt, be sure to weigh the pros and cons. And apply for new credit sparingly because doing so creates difficult credit inquiries, which could affect your scores.
No matter what you decide, it’s important to monitor your credit history to make sure all the information is accurate. if not, it could affect your ability to qualify for a new loan or credit card. You can get a free copy of your Equifax, Experian, and TransUnion credit reports once every 12 months at annualcreditreport.com.