Closed accounts on your credit reports: What they are and what you can do

Frustrated young woman staring at a computer and wondering, "Why is my account reported as closed?"Image: Frustrated young woman staring at a computer and wondering, "Why is my account reported as closed?"

In a Nutshell

Closed accounts on your credit report can be there for multiple reasons, and they’re not necessarily all bad. But if you’re concerned about the effect of closed accounts on your credit scores, we have suggestions for how you may be able to strengthen your credit profile.
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Seeing closed accounts on your credit reports might 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 they’re not all bad.

A creditor may close an account because you requested the closure, paid the account off or replaced it with a loan, or refinanced an existing loan. Your account may also be closed because of inactivity, late payments or because the credit bureau made a mistake.

Whatever the reason, it’s important to make sure the information that’s being reported is accurate because incorrect information can negatively affect your credit.

Read on to learn more about why an account might be closed, what it means and what you might be able to do about it.



Why closed accounts may be on your credit report

There are several reasons an account might be reported as closed. Some may need your attention, while the rest aren’t cause for alarm.

  • You requested it. If you wrote to your creditor, canceled your account and got acknowledgement that the account was closed, it should come as no surprise that it shows up as “closed” on your credit reports. Closed accounts in good standing will typically remain on your report for 10 years.
  • You paid off or refinanced a loan. Paying off a loan usually closes the account. Since you’ve finished paying off your debt, you’ve fulfilled your obligation and the loan no longer needs to remain active. On the other hand, refinancing involves paying off your current loan with a new one, so you might see that your old loan is closed (and a new one is added).
  • Your creditor closed it because of 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 could try keeping one small monthly payment on accounts you want to keep active.
  • Your creditor canceled your account because of delinquencies. If you fall behind on your payments, your lender may close your account. Keep in mind that negative payment history for 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 fix the error.

How a closed account might affect your credit

The effect of 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 the accounts that are still open.

Here are a few things to watch out for when an account is closed.

Your credit utilization may increase

Your credit utilization rate is the portion of revolving credit you’re using compared to how much you have available — generally 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 may lower your credit scores. In general, most experts recommend keeping your rate below 30%.

Closed accounts may stay on your credit reports for up to 10 years

One of the factors used to calculate your credit scores is length of credit history — the longer the better. Old accounts in good standing remain on your credit reports for up to 10 years, which may increase the average age of your accounts and improve your scores.

But when the account falls off after 10 years, the length of your credit history may decrease, which could cause a temporary drop in your scores.

On the flip side, if you have a closed account with a negative history, such as delinquencies, the derogatory information in many cases will remain on your reports for seven years. While it’s there, it will negatively affect your credit history, but the impact on your scores can diminish over time.

Your credit mix may change

Using a mix of different types of credit may have a positive effect on your credit scores. If an installment account, such as a car loan, falls off your credit report, leaving only revolving accounts, or vice versa, your credit scores might drop.

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 need to do next depends on whether you know why it was closed and if the information is correct.

  • No action required. If you asked the creditor to close the account or you paid off a loan, there’s nothing necessary for you to do.
  • Contact your lender. If you don’t know why the account shows as closed, the creditor might be able to tell you. If your creditor closed it, you can ask if it’ll reopen the account, but it’s not required 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 don’t agree with what it’s reporting, you can file a dispute with the credit bureaus. You’ll need to explain in writing what’s wrong, provide documentation that shows why you believe the information is inaccurate, and mail it to the credit bureau or bureaus. The Federal Trade Commission has detailed instructions on how to file a dispute.

Next steps: How to recover if your account is closed

If you’re worried about your credit scores dropping after an account is closed, you may want to consider these ideas.

  • Getting a credit-builder loan — If your account was charged off or closed because of delinquent payments, a credit-builder loan may help you establish a positive payment history and build credit.
  • Rounding out your credit mix — Getting a new loan just to improve your credit mix probably doesn’t make sense. But if you don’t have any 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 accrue interest on your purchases. And it’ll improve your credit mix, possibly helping to bring your scores up.
  • Decreasing your revolving account balances — If a revolving account was closed, reducing the balances on your remaining revolving accounts will help decrease your credit utilization rate, which may improve your credit scores.
  • Have your rent payments reported to the credit bureaus — Rent payments aren’t automatically reported to the credit bureaus. But you might be able to get them added by signing up for a rent payment service that reports your payment history. On-time rent payments might help lift your scores. But keep in mind that not all credit-scoring algorithms use them.

The solution that’s right for you depends on your personal financial situation. Before taking on new debt, be sure to weigh the pros and cons. And apply for new credit sparingly because doing so generates hard credit inquiries, which could ding your scores.

No matter what you decide, it’s important to monitor your credit history to make sure all the information is accurate. If it’s 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.


About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Tow… Read more.