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, theres nothing necessary for you to do.
- Contact your lender. If you dont know why the account shows as closed, the creditor might be able to tell you. If your creditor closed it, you can ask if itll reopen the account, but its not required to. Either way, you know it wasnt a credit bureau error.
- File a dispute. If the lender didnt close the account or you dont agree with what its reporting, you can file a dispute with the credit bureaus. Youll need to explain in writing whats 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.
Why Do Closed Accounts Stay On Your Credit Report
A credit report is a detailed document listing information about how you’ve handled borrowed money. You have a credit report from each of the three major credit bureaus Equifax, Experian and TransUnion which get data about your accounts from lenders and compile it. That data is then used to calculate your credit scores.
Your reports list both positive and negative information about how you manage credit. For instance, if you always pay your car loan on time, it will be listed as in good standing. On the other hand, if youve paid late, that will be noted.
Including both open and closed accounts gives more data about your use of credit, which helps credit scores more accurately portray what type of customer you are.
Its a common misconception that your credit report includes only information about your active accounts. Unless you have a very limited credit history, your credit report is probably full of data about closed accounts, like loans and credit cards you paid off years ago.
How Can You Dispute Credit Report Errors About Student Loans
The process for disputing credit report errors is generally the same whether itâs about a student loan or another account. It starts with checking from the three major credit bureausâExperianÂ®, TransUnionÂ® and EquifaxÂ®âto make sure all the information is accurate.
In most cases, disputing errors online is fastest. Experian, TransUnion and Equifax all have resources to walk you through the process. If you prefer to do it through the mail, the Federal Trade Commission has directions about how to dispute credit report errors and a sample letter you can reference.
Once you report the error, the credit-reporting bureau has to investigate your dispute within a certain period of timeâusually 30 daysâand report its findings to you. But if the bureau decides your dispute is frivolous or too vague, it doesnât have to investigate. You can learn more about what information to include with your dispute below.
The credit bureaus are also required to contact your lender or servicer to investigate your dispute. But as mentioned above, it may be a good idea to do it yourself. The FTC has a sample dispute letter to help with that, too. If doing things online or over the phone is easier, it may be worth reaching out to your lender or servicer to see if they offer those options.
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How A Bad Credit Score Isbad
As pointed out formerly, a bad credit score is anything below 670. If you want to get more specific, a score ranging between 580-669 is considered fair, while anything in between 300 and 579 is considered bad. This is going off the FICO scoring thats most typically used.
Not sure what your credit score is? . Its free!
Having a bad score can stop you from doing a lot of things. This includes getting approved for much better credit cards, home loans, houses, individual loans, organization loans, and more.
Plus, any loans or credit cards you do get approved for will be much more costly . This is since lenders charge much greater rate of interest to those they deem high danger in order to offset the additional risk they feel theyre taking by loaning you money.
How do they get more expensive? By charging higher rate of interest. If you take out a $10,000, 48 month loan on a vehicle with a 3.4% interest rate, youll pay about $704 in interest over the course of the loan. If you took out that exact same loan with a 6.5% rate due to bad credit, you d pay about $1,376 in interest. Thats nearly double!
How To Remove Closed Accounts From A Credit Report
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Incorrect information on your credit report can impact your credit score and can therefore affect your ability to secure a loan, mortgage, or credit card. Closed accounts, or accounts that youve fully paid, can stay on your credit report for up to 10 years. You might want to remove these accounts from your credit report as they can indicate to banks or other companies what your credit habits are. Removing them can be difficult, but is by no means impossible.
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Work With A Credit Counseling Agency
Several non-profit credit counseling organizations, like the National Foundation for Credit Counseling , can help dispute inaccurate information on your credit report. The NFCC can provide debt counseling services, help review your credit reports, work with lenders, and help create a debt management plan free of charge.
As always, be wary of predatory credit organizations or companies. Make sure to find a reputable counseling agency and keep a lookout for any red flags, like hidden fees or lack of transparency.
When looking for a credit counselor, the Federal Trade Commission advises consumers to check out each potential agency with:
- The Attorney General of your state
- Local consumer protection agencies
- The United States Trustee program
How To Remove Closed Accounts From Credit Reports
Closing a credit account isnt a guarantee that it will automatically drop from your credit report.
You might perceive that closing a credit card account would eliminate it from your credit report, but operates in an entirely different approach.
While closing the account prevents you from taking further loans using it, it is still going to appear in your report.
Legally, credit information centers have the right to have all the information displayed in your report.
This provision, however, doesnt mean that you cant remove it from your report.
In this article, were going to highlight the essential steps that youll go through before removing closed account from credit reports.
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Get Free Credit Reports
Visit annualcreditreport.com to order or download a free credit report from each of the three major credit bureaus.
These reports wont show your credit score, but you can check them for inaccuracies and new credit applications you didnt make all of which affect your credit score.
Federal law gives you the right to one free credit report from each credit bureau each year.
Temporarily, because of the Covid-19 pandemic, you can get one free credit report from each bureau once a week.
This provision is scheduled to expire in April of 2021. After that, youll have access to a free credit report only once a year.
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File A Dispute Directly With The Reporting Business
Reporting businesses include credit card issuers and banks. Upon receiving a dispute, they are required by law to investigate and respond. If the reporting business corrects the issue, you saved yourself the step of contacting the credit reporting agency. It is vital to make sure the items are cleaned up for all three credit bureaus mentioned above.
However, trying to work out your debt directly with the lender will not necessarily change the amount of time said negative item would remain on your credit report. It will only change if the dispute is resolved with the lender and deleted from your credit report.
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When To Negotiate With A Creditor
This likely wont work if the charged-off account belongs to you and all the information being reported about it is accurate. In that scenario, you could try negotiating with the creditor or debt collector to update or remove the charge-off account from your credit file. This is called pay for delete, and essentially youre asking for the account to be removed from your credit reports in exchange for a fee.
Pay for delete arrangements are legal under the Fair Credit Reporting Act, but there are a few things to know. First, creditors arent obligated to honor your request and remove charge-offs from your credit. So while you can ask for a pay-for-delete, theres no guarantee that a creditor or debt collector will agree to it.
Second, if they do agree, youll likely need to pay the account in full. However, if an account has been delinquent for some time, the creditor may be willing to accept a settlement in which you pay less than the full amount. Either way, youll almost certainly have to pay something toward the debt.
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When To Write A Goodwill Letter Instead
A goodwill letter is a request that asks a lender or creditor to remove derogatory information from your credit report. Unlike a dispute, the creditor has no obligation to take any action in response to a goodwill letter or assist your credit repair efforts.
Goodwill letters are most effective when consumers had some temporary difficulty that resulted in failing to make timely payments. For example, your goodwill letter may explain that you suffered a severe injury or illness that prevented you from working and created struggles with paying bills.
The effectiveness of a goodwill letter that cites extenuating circumstances is further increased when the account has since been back into good standing. Accounts that have been forwarded to a collection agency and left unpaid are less likely to be successful using a goodwill letter.
Keep in mind that some goodwill letters involving unpaid accounts may be open to a compromise. The creditor might respond to the goodwill letter stating they will consider removing the negative credit entry if the debt is paid however, these arrangements should always be first put in writing.
The pay-for-delete option has risks because the organization is not legally obligated to remove the entry from your credit report regardless of whether the debt is paid. Also, if the debt was sold to a third-party collector the original creditors negative entry may remain and affect your credit score.
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How To Remove Closed Student Loans From Your Credit Report
Staying on top of your credit score means being proactive. One of the ways you can help it rise is by removing accounts that are closed from your credit report. Closing an account does not mean that it will no longer be on your record. One common question in this area comes from student debt. How exactly can you remove closed student loans from your report?
What Happens When You Close An Account
When you close an account, it’s no longer available for new transactions, but you’re still required to pay off any balance you still have due by paying at least the minimum due each month by the due date
After the account is closed, the account status on your credit report gets updated to show that the account has been closed. For accounts closed with a balance, the creditor continues to update account details with the credit bureaus each month. Your credit report will show the most recently reported balance, your last payment, and your monthly payment history.
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Dos And Donts Of Closing A Credit Card
There are good reasons for closing a credit card. Whether the temptation of using credit is leading you to constantly overspend and rack up interest, you have so many cards that youre losing track and missing payments, or you want to get rid of a card with a low limit and higher than normal interest rates, cancelling can be the right move.
If you plan on cancelling one of your credit cards, consider the following dos and donts to minimize the impact on your credit score.
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Wait For The Information To Disappear On Its Own
Also, remember that closed accounts on your report will eventually disappear on their own. Negative information on your reports is removed after 7 years, whereas accounts closed in good standing will disappear from your report after 10 years. If you have tried to dispute incorrect negative information without success, or if your goodwill request went unanswered, its possible that youll just have to wait it out until your problem corrects itself.
If youre curious about which accounts are still on your reports or you simply want to monitor the information on your reports over time, note that you can get a free copy of your credit reports from all three credit bureaus via the website AnnualCreditReport.com. Where you could previously only get a free report from each bureau on this site once per year, you can now access a free report every week through April 2021.
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Understanding Why Its There
All too often, people assume that by paying off a creditor in full this automatically means it is taken off their credit report right away. This isnt true at all, as your credit report will show all your credit accounts, no matter if they are open or closed. What this could also mean is that you can potentially have accounts that have been closed sitting on your report for months, even years before you realize and do something about it.
Now where this closed account sitting on your credit report can hurt you is if the account had any delinquencies on it. It is just sitting there bringing down your entire score, regardless of the fact you cleared it up and paid it all off.
Get A Free Copy Of Your Credit Report
The Fair Credit Reporting Act promotes the accuracy and privacy of information in the files of the nations credit reporting companies. Monitoring your credit report is a necessary practice to keep in check any negative information. Consumers should obtain their free credit report and review it at least once a year to catch any irregularities on time and keep track of disputed items.
Consumers are entitled by law to a free annual credit report from each of the three main reporting bureaus: Equifax, Experian, and TransUnion, and you can access all three of them through one single website:
AnnualCreditReport.com is the only authorized website through which you can gain free access to your credit report from the three major bureaus. Be wary of other sites that promise the same, as they may have hidden fees, try to sell something, or collect personal information.
|Mail: Download, print, fill out, and mail to:|
|Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281|
Equifax made headlines in 2017 due to a massive data breach, but it remains one of the top 3 services to get your credit report. The company provides a few different service levels if you want to monitor your credit score monthly . Monitoring packages start at $14.95 per month, and the $19.95 per month options include, ironically, a host of identity-theft protection options.
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What Will Help Improve Your Credit Score
- Your Payment History: Delinquencies and missed payments hurt your credit score more than most other factors. In fact, the FICO scoring model ranks payment history as most important in your credit profile.
- Your Credit Utilization Ratio: If youre using a lot of your available credit on your credit cards, expect your credit score to suffer. For best results, pay down your credit card balances to 25%. Never exceed 30% of your available credit lines. Often, keeping an account or two open after youve paid them off can decrease your credit utilization ratio and increase your score.
- Other Factors: Keeping a mix of different types of credit a student loan, a couple credit cards, a car loan, and a mortgage, for example will help your credit score some. Limiting new credit applications can help, too.
Developing these good habits will help a lot, but lets be clear: a major negative entry like bankruptcy, foreclosure, or repossession on your credit file will cause bad credit.
The good news: Even if you cant get them removed using the four strategies I outlined above, these negative items on your credit report hurt your score less and less as they age.
So by making good credit decisions now, youre adding positive information to your credit history thats newer than your negative information.
Your good decisions will help your score eventually!