Do Closed Accounts Affect Your Credit Score?

A credit score provides a numerical representation of an individual’s creditworthiness, helping lenders assess the risk associated with extending credit. Many people wonder how closing a credit account might influence this metric. Understanding the mechanics behind credit scoring models and how they treat closed accounts is key for managing one’s financial profile. This article explores how closed accounts can impact a credit score.

How Credit Scoring Models Consider Closed Accounts

Credit scoring models, such as FICO and VantageScore, evaluate several factors to generate a credit score. These factors typically include payment history, credit utilization, the length of credit history, the types of credit used, and new credit applications. The closure of an account can influence several of these factors.

Closing an account, particularly a revolving credit account like a credit card, can immediately affect an individual’s credit utilization ratio. This ratio compares outstanding balances to total available credit. When a credit card is closed, its credit limit is removed from the total available credit, which can cause the utilization ratio to increase if balances are carried on other cards. A higher credit utilization ratio indicates greater reliance on credit and can lower a credit score.

The length of an individual’s credit history is another factor considered by scoring models, reflecting how long accounts have been established. For FICO scores, closed accounts generally continue to contribute to the average age of accounts as long as they remain on the credit report, which can be up to 10 years. Closing an old account might not immediately shorten the average age of accounts for FICO. However, some VantageScore models primarily consider open accounts when calculating the average age of credit.

Payment history, the most influential factor, continues to be reflected on closed accounts. If an account was managed responsibly, that positive record remains on the credit report even after closure. Conversely, any late payments or delinquencies associated with the closed account will continue to impact the score for a specified period. The effect of a closed account is not always negative; it depends on the account’s history and overall credit profile.

Impact on Credit Scores by Account Type

The specific impact of a closed account on a credit score varies depending on the type of account that is closed. Revolving accounts, such as credit cards, function differently than installment loans, and their closure can have distinct consequences.

When a revolving account like a credit card is closed, its credit limit is no longer part of total available credit. If balances exist on other cards, this reduction can increase the credit utilization ratio, potentially lowering the credit score. If the closed credit card was an older account, its closure could, over time, decrease the average age of credit accounts.

Installment loans, such as mortgages, auto loans, or student loans, behave differently upon closure. Once these loans are fully paid off, the account closes, but the positive payment history throughout the loan term remains on the credit report. Unlike revolving credit, utilization is not a continuous factor for installment loans after they are paid off, as there is no ongoing credit limit. Completing an installment loan demonstrates successful management of a credit obligation.

Accounts closed with a history of negative information, such as late payments, defaults, or collections, will continue to negatively affect a credit score. This remains true even after closure, as the derogatory information persists on the credit report for a specific duration. The presence of such negative marks can significantly reduce credit scores, and their impact diminishes gradually as they age on the report, but they do not disappear immediately upon closure.

Credit Report Information for Closed Accounts

Closed accounts do not simply vanish from a credit report once they are no longer active. Both positive and negative closed accounts typically remain on credit reports for a specific period, influencing an individual’s credit profile. This reporting duration is governed by federal regulations and industry standards.

Generally, closed accounts that were in good standing, meaning they had a history of on-time payments and no delinquencies, can remain on a credit report for up to 10 years from the date they were closed. These positive accounts continue to contribute to the length of credit history and serve as evidence of responsible credit management.

Conversely, closed accounts that contain negative information, such as late payments, charge-offs, or accounts sent to collections, will remain on a credit report for approximately seven years from the date of the original delinquency. While these negative marks continue to harm the credit score for the duration they are reported, their impact on the score typically lessens as they age. After the seven-year period, these derogatory marks are usually removed from the credit report.

Individuals can monitor the status of their closed accounts, along with all other credit information, by regularly obtaining copies of their credit reports. Federal law allows consumers to request a free credit report from each of the three major credit bureaus—Experian, Equifax, and TransUnion—once every 12 months through AnnualCreditReport.com. Reviewing these reports helps ensure accuracy and provides insight into how closed accounts are affecting one’s credit standing.