What Is Credit Utilization
You can calculate your credit utilization ratio using the following formula:
Maintaining a credit utilization ratio of 0% to 10% is best if you want to maximize your credit scores. But unless youre planning to apply for financing in the near future, a utilization rate of less than 30% may be sufficient.
Either way, youll want to pay your full statement balance by the due date every month to avoid expensive and to protect your credit score from late payments. If youre trying to keep the credit utilization on your credit report as low as possible, then the best time to pay your credit card is prior to the statement closing date.
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Consider A Passbook Loan
You could also take out a passbook savings loan, especially if you are light in the credit mix department. While this only accounts for 10% of your overall score, it helps creditors to see that you can handle both fixed and variable payments. People with thinner files can certainly benefit from this practice.
Passbook savings loans enable you to use your own money so you dont have to worry about accumulating debt. Just be sure that the loan will be reported to the credit bureaus. If so, its a win-win proposition.
What Is The Closed Status For A Student Loan
Closed status means that you no longer make payments on the student loan. The borrower might request closed status, or might be paid off. If a borrower requests closed status, the servicer must close the loan. This is so unless there is an outstanding balance or unless the borrower owes a fee such as a late payment fee.
If a borrower has multiple loans with multiple servicers and requests closed status, the servicer must close all of the loans in order to comply with this federal requirement.
Closed status may also happen automatically if your loan enters into default. For example, if you do not make a payment for 270 days , your loan will go into default, and the servicer will close your loan.
In some cases, even if you have made all of your payments on time, your loan may go into default. As a result, it will be closed by your servicer.
For example, if you have permanently stopped attending school before graduating from college, your lender will notify you that it plans to close your loan.
In this case, if you want to continue paying back your student loans, you can contact your lender and ask them to change their decision to close your account.
Also, seek ways of paying off your loan. You can try to short your student loan if that is possible. But the best way is to just follow the rules.
FAQs on Shorting Closed Loans
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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.
Can A Collection Agency Report An Old Debt As New
You may have heard of another date pertaining to collection accounts: the date of last activity .
You might have heard it said that you should never make payments on a collection because that action would change the DLA on the account. If the DLA changes, so the advice goes, this resets the clock on the seven-year period after which the collection will fall off your credit.
In reality, debt collectors cannot change the DLAonly the can do that. Furthermore, the DLA does not affect the timeline of your collection account.
The seven-year period begins at the DOFD, not the DLA, and not the open date of the collection. The collection agencies are not legally allowed to change the DOFD, so there should be no legitimate way for them to restart the seven-year timeline. Yet there are many cases in which consumers report that their collection accounts are suddenly being updated as new accounts, even if they are several years old. What is going on in these situations?
This shady practice is the collection agency re-aging the debt.
Its illegal to re-age a collection account by incorrectly changing the DOFD.
When a debt collector acquires an account, they sometimes improperly update the DOFD to be the same as the date that the new collection account was opened. If you make a payment on the collection, they may replace the DOFD with the DLA, which is the date that you made the payment. This explains why the seven-year clock seems to restart in these situations.
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How Closed Accounts Affect Your Credit
Your FICO credit score is determined by a wide range of factors including your payment history , how much debt you owe , the average length of your credit history , new credit and your credit mix . compile this information on your credit reports, which they use to determine where your score falls.
The two main areas where closed accounts can affect your credit score are the length of your credit history and the amounts you owe. Heres how:
- Certain closed accounts can increase your credit utilization rate. When you close a credit card account specifically, you are reducing the amount of open credit available to you. This can cause your credit utilization rate to increase, which could have a negative impact on your credit score. Note, however, that installment loans like personal loans do not affect your credit utilization. For this reason, a closed personal loan account would not affect your credit utilization rate.
- Closing an account can decrease the average length of your credit history. The length of your credit history is partially determined by the average age of all your credit accounts combined. As a result, closing an account can reduce the average length of your credit history, and thus impact your credit score in a negative way.
How To Dispute Accurate Information In Your Credit Report
Accurate items in your record can’t be removed before the term set by law expires, which is seven years for most negative items. For example, if you truly missed payments on your credit card, your dispute to remove that information will be denied. However, the information will automatically fall off your credit report seven years from the time you missed the payments.
If you do have valid negative items on record, here are some things that might help:
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Should I Try To Get Rid Of Closed Accounts On My Credit Report
Don’t try to remove a paid-off mortgage, car loan, credit card or other accounts from your credit report if they show a positive payment record. That good record will continue to help your credit scores.
If you have negative marks on the account, however, you want it off as soon as possible. You can use AnnualCreditReport.com to get free reports from the bureaus every 12 months to verify negative information has been removed as required by law. If a negative mark is lingering, you can file a dispute.
Many credit scoring models now exclude paid-up collections accounts. But because some lenders still use older scoring models, you may want to try removing collections from your reports.
If A Credit Card Is Closed Can It Be Reopened
In some cases, consumers may be able to reopen closed credit cards.
If your account was closed due to fraud or delinquency, banks typically do not allow these accounts to be reopened.
If it was closed voluntarily on your part or closed due to inactivity, however, you might have a chance to reopen the account if you dont wait too long.
Only some banks will allow this, and those that do have varying time limits as to when you can reopen an account, so check with your credit card issuer.
If youre within the time window and your account is eligible to reopen, heres how to reopen a closed credit card account:
- Be ready to provide your personal information and answer security questions.
- Explain why you closed the account and why you are requesting to reopen it.
Some issuers may require a hard inquiry before they can approve your request, which could cause a small, temporary drop in your credit score.
If your bank doesnt allow you to reopen the card, the next best solution might be to re-apply for the same card or apply for a new credit card altogether.
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How Will You Attack Your Settled Account
You know what a settled account is and how it can affect your credit score.
If the account affects your credit score negatively and causing it to drop, its time to start thinking about ways to remove the account from your report.
How to remove settled accounts from credit reports may seem like a long and grueling process, but once the account has been removed you wont be a high risk for financial institutions.
As we have stated, if the account appears to just be hanging out and not affecting your score in a positive or negative way, its best to just let it on your report.
To be honest, showing this payment history can help your credit score as long as you were on time.
Now its time to decide if you will let the settled account stay on your report or if you will take steps to remove it.
For more finical tips and information be sure to check out our website.
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Can You Reopen A Closed Account On A Credit Report
You dont have a lot of options to re-open accounts closed due to delinquency. You can though ask that an issuer re-open an account that was in good standing but that you chose to close. The credit card company may update the status of the original account to open or make create a new account. You can ask which approach it uses. Reopening an old account can build on your established credit history.
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Review The Claim Results
Reporting agencies and lenders usually take around 30 days to investigate disputes. Once they make a decision, they must notify you within five days of completing their review. The notice will inform you if the disputed item was found to be inaccurate or not.
If the disputed information was, in fact, inaccurate, the bureau must update or delete the item. They should include a free copy of your file if the dispute results in a change.
If the bureau or lender finds that the disputed information isn’t a mistake, you can file an additional claim. Review your initial claim for any errors and correct those. If possible, you should include additional documents to support your request, which can help the bureau evaluate any information it might have missed the first time around.
How Long Will Derogatory Credit Last
Derogatory credit can follow you around for a long time. Some types of derogatory informationlike a bankruptcycan remain on your credit report for up to 10 years.
Most other derogatory informationlate payments and debt collection accountswill only remain on your credit report for seven years. Typically, these items will automatically fall off your credit report once theyre past the credit reporting time limit.
Only accurate, timely, and complete information can be included on your credit report. You can dispute an error or outdated derogatory item with the credit bureaus to have it removed from your credit report.
In some cases, having negative information removed can increase your credit score, but it depends on the rest of the information on your credit report.
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File A Dispute With The Credit Reporting Agency
Once you have your report, look through each account and see if there are creditors or accounts you dont recognize. Its also important to check whether older derogatory items are still being reported.
If you do find errors in your reports, dispute them directly with the reporting bureau through its website or by mail. This will prompt an investigation on the bureau’s part.
Bear in mind that you have to dispute the entry with each agency to make sure the removal is complete across the board.
How to file a dispute online
Each bureau Equifax, Experian and TransUnion has a section dedicated to walking consumers through the online dispute process. Once you create an account, you can file as many disputes as you need and check their status for free.
How to file a dispute letter
You can also send a dispute letter to the bureaus detailing any inaccuracies you’ve found in your credit file. When writing your letter, provide documentation that supports your claim and be precise about the information you are challenging. The Consumer Financial Protection Bureau recommends enclosing a copy of your report with the error circled or highlighted.
Depending on the information being disputed, these are some of the documents you can provide to help aid the investigation:
- Copies of checks
Include this dispute form with your letter.
Closed Accounts And Credit Age
Many people believe that once an account is closed, it will no longer count toward your credit age. However, according to an article by in The Simple Dollar, this is a myth.
Not only will the history of a closed account remain on your credit reports, but credit scoring models will continue to consider the age of the account as well. And, even better, a closed account continues to age. So, if you closed a five-year-old credit card today in 12 months its going to be a six-year-old credit card.
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How To Get Rid Of Closed Accounts On Your Credit Report
If your credit card has been closed, you can try calling your credit card issuer to ask if the account can be reopened, but dont wait too long.
If a closed account on your credit report is reporting inaccurately, then you can dispute it and have the update the account with the correct information or remove it.
Contact each credit bureau or check their websites for instructions on how to dispute accounts on your credit report.
How Length Of Credit History Is Impacted
If you research the topic of credit card closures, you might come across a common warning. Many believe that closing a credit card will reduce the age of your credit report. However in many cases, this warning is unfounded.
Credit scoring models like FICO and VantageScore do consider your age of credit history. And factors like the average age of the accounts on your credit report can impact your credit score.
- FICO® Scores: Length of credit history is worth 15% of your FICO® Score.
- VantageScore: 20% of your score is based on your depth of credit. Your average account age is a factor within this category.
However, when you close an account FICO scoring models still count it in your average age of credit calculations. Closed, positive accounts stay on your credit report for up to 10 years, and up to seven years if negative. As long as an account shows up on your , its age factors into your FICO Score.
VantageScore credit scores are a bit different. Certain closed accounts may not count toward your average age of credit. Therefore, a credit card closure might hurt you if a future lender uses a VantageScore scoring model to calculate your credit score.
Eventually a closed credit card will come off your credit report. When that happens, your average account age may decline as far as FICO is concerned too. At that point its possible youll see a score drop caused by your credit card closureespecially if the card you closed was your oldest account.
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Setting Yourself Up For Success
Now, lets say your credit score isnt perfect . There are plenty of things you can do to improve your credit score, even if you have inaccurate information recorded on your profile or a short lifetime.
Your credit score is based on a variety of factors and can take a lot of time to build or repair, but you have the resources to change it with time and a healthy dose of dedication.
Here are a few ways you can work toward a better credit score in your future:
- Change your credit limit by paying off some of your balance or increasing your credit limit.
- Set up autopayto ensure youre making payments on time each month.
- Keep old accounts opento extend the lifetime of your credit age.
How To Remove Negative Items Related To Identity Theft
If you believe youve been a victim of identity fraud, you should first file a dispute with the Federal Trade Commission online at IdentityTheft.gov or by phone at 1-877-438-4338. You should also file a police report.
After you report the incident, make sure to take the following steps:
- Request a copy of your credit report through AnnualCreditReport.com
- Look out for unauthorized transactions or new accounts that dont belong to you
- Contact the credit bureaus through phone or mail to dispute any credit information that doesnt belong to you
- Place a security freeze and fraud alert on your credit report
- Contact creditors to close compromised accounts
- Consider subscribing to an identity theft protection or credit monitoring service
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