Something Fell Off Your Credit Report
Thankfully, missed payments and derogatory marks wont stay on your credit report forever. The greater the age of those marks on your credit score, the less impact they have, so you may see your score recover over time while your behavior is kept consistent.
Late payments over 30 days will remain on your credit report for 7 years, while derogatory marks like bankruptcy can remain on your report for up to 10 years. Over time your score will recover, and once these marks fall off your credit report, you may see an instant boost in score.
Open Vs Closed Accounts On Credit Report
In the tradeline industry, we often get questions about whether closed accounts have an impact on ones credit and, if so, what value they hold relative to open accounts.
It is possible to have a good credit score without having any open accounts. Photo by CafeCredit.com, CC 2.0.
This is an important question, because generally when you buy tradelines you are an active authorized user for two reporting cycles, and after you are removed from the account, it will begin to show as a closed account on your credit report.
Therefore, it is useful to know what impact the tradeline might have after it converts to a closed tradeline.
From what we have seen, closed accounts often can still be a very powerful influence on ones credit score.
Remember, the age of a closed account still factors into your credit, and accounts continue to age even after they have been closed. Age and payment history go hand-in-hand and together make up 50% of a FICO score, and since closed accounts can still contribute to these factors, this implies that closed accounts can still have a strong effect on your credit.
However, closed accounts may have a diminishing impact over time, since tend to prioritize recent events.
Financial Information On Your Credit Report
Your credit report may contain the following financial information:
- non-sufficient funds payments, or bad cheques
- chequing and savings accounts closed for cause due to money owing or fraud committed
- bankruptcy or a court decision against you that relates to credit
- debts sent to collection agencies
- inquiries from lenders and others who have requested your credit report in the past three years
- registered items, such as a lien on a car that allows the lender to seize it if you dont make payments
- remarks, including consumer statements, fraud alerts and identity verification alerts
Your credit report contains factual information about your credit cards and loans, such as:
- when you opened your account
- how much you owe
- if you made your payments on time
- if you missed payments
- if your debt has been transferred to a collection agency
- if you went over your credit limit
- personal information thats available in public records, such as a bankruptcy
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How To Cancel A Credit Card: 6 Steps
Let’s say you do decide that closing the account is the best move. Here are six simple tips to help you navigate the process:
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What Is A 609 Letter
The Fair Credit Reporting Act contains Section 609, which explains how consumers have a right to obtain copies of their credit file reports and related information. Section 609 requires credit agencies to disclose sources of information and other details that impact credit scores.
A 609 Credit Dispute Letter is a term forged by credit repair and credit score improvement companies describing a strategy that attempts to force a credit reporting agency to remove negative information.
The FCRA does not actually reference any 609 dispute letter or delete letters.
Oddly, the strategy is more closely based on Section 611 that allows for disputing credit report entries based on whether they are verifiable or substantiated. A 609 letter challenges the credit reporting agency, lender, or collector to produce documentation proving the validity of the debt.
A credit repair company will often market these dispute letter templates to consumers with bad credit or offer to send them on behalf of the consumer at a cost. Most 609 letters request original source information such as the initial signed contract or other documentation.
The 609-dispute letter strategy has traditionally produced mixed results in removing negative information. The likelihood of success may increase if the original creditor has sold the debt to a third-party debt collector that is less likely to have much of the original documentation on file.
What Is A Closed Account On A Credit Report
A closed account on your is simply any credit tradeline that has been closed, whether it was terminated by the customer or the creditor.
There are several different reasons why an account may be closed.
If you dont use your account for several months, it could get shut down for inactivity. Photo by Hloom on Flickr.
If you dont use a credit card for several months, for example, you could get your credit card closed for inactivity. In this case, your credit report might say account closed by credit grantor for that account since the lender was the party who terminated the account.
Other reasons a credit card may be closed by the creditor include:
- The credit card issuer is no longer offering that type of credit card or is replacing it with a different card
- The credit card issuer determined that there was fraudulent activity on the account
- The card was stolen or lost
Consumers may also want to close their own credit accounts from time to time, in which case the account might be notated as account closed by consumer. As an example, if one of your credit cards increases its annual fee or if you no longer feel that the fee is worth it, you might decide to close that account.
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Alternatives To Closing Your Oldest Credit Card
If you’re considering closing any credit card account, Griffin recommends you first ask yourself, “Why do I want to close it?” That may be due to an annual fee or high interest rates, like we mentioned above.
If you’re looking to get rid of an annual fee card, consider asking your card issuer for a retention offer, like I did last year with my American Express® Gold Card. This may include them waiving or lowering your annual fee, or offering cash back, points or miles to help offset it.
And if you have a card with a high interest rate and debt, try calling to ask for a lower interest rate. If you have a relatively good history and always make your minimum payment on time, your card issuer may be willing to work with you. After all, it never hurts to ask.
For rates and fees of the Discover it® Balance Transfer, click here.
How To Remove A Closed Account From Your Credit Report
You might think closing a credit card or other account might remove it from your credit report automatically. But while closing an account prevents you from using it, that doesn’t mean it disappears from your credit history.
If you’d like to remove a closed account from your credit report, you can contact the to remove inaccurate information, ask the creditor to remove it or just wait it out.
How Closed Accounts Affect Your Credit
With a credit card, “closing an account causes you to lose the available balance on that card,” says Rod Griffin, director of public education at Experian. “That results in an increase in your utilization rate, or balance-to-limit ratio.”
That could hurt your credit score, as a higher rate of use in relation to your credit limit is a sign of risk, Griffin says.
Installment loans are a little different, since they aren’t revolving accounts like credit cards and don’t have an effect on your credit utilization ratio. Once a loan is paid in full and the account is closed, you lose the benefit of continuing to make regular on-time payments that have a positive impact on your credit score, but the payment history remains.
Regardless of whether it’s a loan or credit card, a closed account can still affect your score. According to Equifax, closed accounts with derogatory marks such as late or missed payments, collections and charge-offs will stay on your credit report for around seven years.
Removing a Closed Account from Your Credit Report
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Common Credit Report Errors To Look Out For
According to the Consumer Financial Protection Bureau, these are the most common errors consumers find on their credit history:
- Wrong name, address or phone number
- Accounts from someone with a similar name
- New credit accounts opened by someone who stole your identity
Incorrect account status
- Accounts wrongfully labeled as open, past due or delinquent
- Accounts that wrongfully listed you as the owner instead of authorized user
- Wrong date for the last payment received, date the account was opened or delinquency status
- Same debt listed multiple times
- Information that is not removed, despite already being disputed and corrected
- Accounts that are listed multiple times, with different creditors
- Incorrect credit limit
My Bank Or Credit Union Closed My Checking Account Will This Hurt My Credit
The big three consumer reporting companies Experian, Equifax, and TransUnion typically do not include information about your checking account or check-writing history in traditional credit reports. However, checking account reporting companies do collect and report on information related to your checking account.
These companies, which include Chex Systems and Early Warning Services, collect and report information about checking accounts youve had in the past. If youve had your account closed due to an unpaid negative balance, the bank or credit union would typically report this involuntary closure to a checking account reporting company. You may also be reported if you were suspected of fraudulent activity by the bank or credit union. Banks and credit unions often use reports from these companies to help decide whether to offer you a checking account and the type of checking account to offer you.
Some banks and credit unions use additional information, such as information from your credit report, to determine whether or not to let you open a checking account.
Also, debts that come from negative closing balances are sometimes passed on to debt collectors, and those debt collectors might supply information to the big three consumer reporting companies that the debt is in collections. That would affect your credit report and score.
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Your Credit Utilization May Increase
Your credit utilization rate is the portion of revolving credit youre 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%.
Can A Creditor Close An Account Without Your Knowledge
People are often surprised to learn that creditors are under no legal obligation to inform you before closing your account. There are all kinds of consumer protection laws,
but when it comes to letting a consumer know an account has been closed, anything goes. While a credit card company may contact a customer when an account is in arrears , it has no legal obligation to tell someone it’s closed the account.
It seems odd, given that credit card issuers are legally required to tell cardholders when they make major changes to the account. But legally, closing an account is not considered a major account change.
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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.
Inactive Credit Card: Use It Or Lose It
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- Paid accounts that are inactive may be closed by the lender after a certain period of time
- You may not be notified before this happens
- The cancellation may impact your debt to credit utilization ratio and your mix of credit accounts
You may not have given much thought to the credit card in the back of your wallet or in a drawer the one that was paid off and that you havent used in a while.
But after a certain period of time, which varies depending on the lender or creditors policies, they may consider your account inactive and it may be closed.
Remember that when it comes to credit, its important to show that you can handle financial commitments responsibly. A part of that is being able to use credit cards responsibly by paying them off regularly, on time, every time.
If you werent using the credit card, will the cancellation impact you at all? That depends on several factors, but here are some of the things you should know about account inactivity.
How long can my account be inactive before it’s closed?
It depends on the company. Accounts may be deemed inactive if there arent any new purchases on the card for a certain period of time. You may want to consider speaking with the credit card company with whom you have an account to learn more about its policies on account inactivity.
Will I be notified before my account is closed?
How does this affect my credit history?
What can I do?
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 credit history 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.
Politely Ask For The Information To Be Removed
If you dont necessarily have any incorrect information to dispute but you still want a closed account removed from your credit reports, you can also write the credit bureaus a goodwill letter. This type of formal request could lead to having an account removed out of goodwill, yet there are no guarantees.
Either way, you can ask and all they can say is no. You can find out how to contact all three credit bureaus using the links below:
- Transunion: TransUnion.com/credit-help
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What Impact Will It Have On My Credit Score
Credit scores are calculated based on various factors including payment history, your rate, the age of accounts, types of credit used, and more. A closed account that has an unpaid balance or other negative information clearly has an adverse impact on your credit score.
Keep in mind that your utilization rate or amount of your available credit being used also has an impact on your credit and FICO score. Generally, creditors such as credit card companies and credit unions view a utilization rate of below 30% as good.
It is important to differentiate an inactive or dormant account from one that has actually been closed. For example, perhaps you disposed of a credit card that you were no longer using but never closed the account with the creditor.
A credit card that you no longer use may still be reported by a creditor as an active account on a credit report, thus the available credit limit on the card factors into your utilization rate. Here, a consumer should assess whether closing the inactive account would increase your utilization rate.
It is also possible that inaccurate information exists such as closed accounts may be incorrectly reported by a creditor as active or vice versa. Any closed account marked as paid as agreed or a similar positive description is likely helping your overall credit score and is best left intact.