Are Closed Accounts Good for Your Credit?

Credit reports and scores are fundamental tools used by lenders to assess an individual’s financial reliability. A credit report details your credit history, including accounts and payment behavior. A credit score, derived from this report, is a numerical summary of your creditworthiness, helping financial institutions make decisions about lending money, setting interest rates, and determining credit limits.

Credit Report Presence of Closed Accounts

Closed accounts remain visible on your credit report, rather than being immediately removed upon closure. The duration an account stays on your report depends on its payment history. Accounts closed in good standing, meaning those without any payments more than 30 days late, can stay on your credit reports for up to 10 years from the date of closure. This continued presence can be beneficial if the account consistently showed positive payment behavior.

Conversely, if an account was closed with negative marks, such as late payments, defaults, or collections, this derogatory information can remain on your credit report for up to seven years from the date of the original delinquency. Even if the account itself remains on the report for up to 10 years, the negative payment history will fall off after seven years. Closing an account does not erase any negative payment history associated with it.

Credit Score Impact of Closed Accounts

The impact of a closed account on your credit score affects several key components that determine your overall creditworthiness. Payment history, a significant factor in credit scoring, continues to be considered even after an account is closed. If the closed account had a history of consistent, on-time payments, this positive information will continue to contribute favorably to your score for as long as it remains on your report, typically up to 10 years. Conversely, any late or missed payments on a closed account will continue to negatively influence your score for approximately seven years.

The length of your credit history also plays a role. Closing an older account can potentially reduce the average age of all your accounts. This factor considers the age of your oldest and newest accounts, as well as the average age of all your accounts. If you close a long-standing account, particularly your oldest one, it might shorten your overall credit history, which can negatively affect your score.

Credit utilization, the amount of revolving credit you are using compared to your total available credit, can be significantly impacted by closing an account. When a revolving account, like a credit card, is closed, its credit limit is removed from your total available credit. If you carry balances on other open accounts, reducing your total available credit can increase your credit utilization ratio, potentially lowering your credit score. Financial professionals advise keeping this ratio below 30%.

Finally, your credit mix, which refers to the different types of credit you manage (e.g., credit cards, installment loans), might also be altered. While this factor carries less weight than payment history or utilization, closing an account could shift the diversity of your credit portfolio.

Monitoring Your Credit After Account Closure

After an account has been closed, actively monitoring your credit reports is a prudent financial practice. This allows you to ensure the information reported is accurate and to understand any changes to your credit profile. You are entitled to a free copy of your credit report from each of the three major nationwide credit bureaus—Equifax, Experian, and TransUnion—once every 12 months. These reports can be accessed through AnnualCreditReport.com, or by phone or mail.

When reviewing your credit report, carefully examine the details of the closed account. Verify that the closure date is correct, the payment history is accurately reflected, and that the account status is noted as “closed at customer’s request” if you initiated the closure. If you identify any inaccuracies, you have the right to dispute them with the credit reporting company.

The dispute process involves submitting a written explanation of the error, along with supporting documentation. You can submit disputes online, by mail, or by phone to each credit bureau where the inaccuracy appears. Credit bureaus are required to investigate your dispute within 30 days and inform you of the outcome. If the information is found to be inaccurate, it must be removed or corrected.