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When Does A Closed Account Drop From Credit Report

Hold Off On New Applications

Why Does Your Credit Score Drop After Closing an Account? | 3 Major Reasons

If you’re thinking about getting new credit cards, you may want to hold off for nowor wait until you’re pre-approved for one. A lot of lenders are trying to limit their risk, and many are denying credit card applications that would be approved under normal circumstances.

It’s worth noting that this is mostly related to short-term revolving credit accounts like credit cards. Other debt, like home loans and home equity lines of credit which are secured and often sold by your lender to outside investors are still just as available as they were before the pandemic.

Average Age Of Credit

Finally, closing an account affects your average age of credit.

Keeping accounts open for a long time shows you can manage them responsibly. When you close an account, it stops aging.

When it drops off of your account, you lose all benefits from having had the account open and in good standing.

Your average age of credit makes up 15% of your credit score. When you add these three factors together , they make up over half of your credit score. So keep that in mind when thinking about closing a credit account.

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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Ask For A Goodwill Deletion

If you have a paid collection listed on your report, you can simply ask the debt collector or original collector to remove the collection. This usually involves sending the debt collector or collection agency a goodwill deletion letter explaining your mistake, asking for its forgiveness and showing them how your payment history has improved.

With this option, theres no guarantee your collection will be removed from your credit report, but its worth a shot. If the account is removed, it may help you qualify for better terms on personal loans, mortgages and credit cards.

How To Remove Closed Accounts From Your Credit Report

7 Reasons for Your Credit Score Drop (and How to Fix It)

If you need to attempt to remove a closed account from your especially one that includes inaccurate information or negative itemsthere are three ways to do so. You can either dispute inaccurate information with the , write a formal goodwill letter to request removal or simply wait until the account is removed after a period of time. Each of these approaches can be useful depending on your particular situation.

Read on to learn more about when to try each of these different methods for getting a closed account off your credit report.

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What Happens When You Close A Credit Card

When you close a credit card, it doesnt fall off your credit report right away because it’s still within the credit reporting time limit.

If you’re still making monthly payments on a credit card balance, your payment history will continue to be updated each month. Once you’ve completely paid off the balance, the credit card issuer will eventually stop sending monthly updates for that account since it becomes inactive.

Paying at least the minimum on time is important even after you’ve closed your account. Any payments late by 30 days or more will be updated on your credit report and included in your . These late payments can stay on your credit report for up to seven years. You’ll also be charged a late fee.

The account status for a closed credit card will be reported as closed, even when you’re still making payments on the balance. The status may indicate that the account was closed by you, the cardholder, or the , depending on which of you closed the account. If your account was closed with a delinquency, like a 90-day late notice or a charge-off, that will show on your credit report, too.

How Do Collection Reports Impact Your Credit Score

While a collection report usually causes serious damage to your credit score, how much it impacts it depends on which credit scoring model you use to calculate your score. It also depends on whether the collection account is paid or unpaid. For example, FICO Score 9the latest version of the FICO credit scoring modeldoesnt report paid collection accounts.

Earlier versions of this credit scoring model, however, do include paid collection accounts. If a lender uses an earlier model to assess the likelihood you can repay a loan, its likely that it will see a lower credit score if you have a paid collection account listed on your credit reports.

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Close Accounts With Care

Closing credit accounts makes sense when trying to avoid an annual fee or when leaving a credit card you really dont like.

But when you have a say in the matter, you should typically try to keep your accounts open as long as possible if your credit score is the primary factor for you.

Sometimes, it may be worth a small ding to your credit to close an account.

If you have a large number of accounts, closing one has a smaller weight than someone with just one or two. If closing an account will save you money, that is usually worth more to you than a mild change to your credit.

If you are going to close an account, that is okay. Just make sure you are doing it for the right reasons and doing your best to minimize any negative impact on your credit.

You Applied For New Credit


Any application for new credit, be it a credit card, a line of credit, or a loan, results in a hard inquiry on your credit file. Each hard inquiry can cause your score to drop a few points, although it’s nothing big.

How to fix it — There’s no work needed on your part this time, as hard inquiries only affect your credit for a year. One hard inquiry won’t cause that much of a dip in your score.

You will, however, want to avoid any more credit applications so that your score can recover.

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Closing A Credit Card Can Raise Your Credit Utilization Ratio

When an installment loan, for say a car or furniture, gets paid off that account is closed. However, I want you to think twice before closing a revolving account just because you havent used it in a while.

Dont get me wrong there are good reasons to close revolving accounts, like a high annual fee or poor customer service but generally speaking, I recommend not closing accounts especially for someone with a limited credit history.

While the closed account will still count toward your credit age in that part of the equation, if you close a credit card you may lose points in the credit utilization scoring factor, which counts for 30% of your FICO score.

Closing an account reduces your overall available credit, which is used in the utilization calculation. Utilization is figured two ways. First, the ratio of balance to credit unit is used, and second, the ratio of all your credit limits on all your cards to all your balances is factored in. Closing an account reduces the value of the second ratio.

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You Had An Account Reported To Collections

A collections account can wreak havoc on your credit. The original creditor will report that you didn’t pay, and then the collections agency that buys the debt will also report it to the credit bureaus.

If you had an excellent credit score to begin with, a collections account could easily drop it by 100 points or more.

How to fix it — First, verify that it’s a legitimate debt. If not, you can dispute it with the creditor and whichever credit bureaus have the debt listed on your credit report.

Collections accounts can damage your credit for years, but you may be able to negotiate what’s known as a “pay for delete” with the collection agency. Simply put, you let the agency know that you’ll pay off the account only if they agree to take it off your credit file.

Not every collection agency will agree to this and the credit bureaus frown on it, but it’s worth a shot.

Use The Advanced Method To Dispute The Charge

Why Did My Credit Score Drop?

If you dont have the money to pay the balance in full, or if you cant get the original creditor to remove the charge-off from your credit report, its time to dispute the negative entry using a more advanced method. To dispute the entry youll first need a copy of your current credit report. Because of the coronavirus pandemic, you can get a free copy of your credit report each week instead of just once a year. Visit to get a free credit report from TransUnion, Experian, and Equifax.

When you have your credit reports in hand, find the charge-off entry and look at every detail to ensure everything is completely accurate. The key here is to be very specific. If anything is inaccurate you have the right to dispute the entire entry.

Here are a few details that you should be verifying are accurate:

  • Account Number
  • Borrower Names
  • Balance

If you find any information that isnt correct, write a letter to each of the three credit bureaus listing the inaccurate information and stating youve found incorrect information that needs to be corrected or removed. If the credit reporting agencies cant verify the entry, theyll have to correct or remove the charge-off in compliance with the Fair Credit Reporting Act. Sometimes the information simply cant be verified and the entry will be removed. Do note however, that if the charge-off is reported accurately, disputing it will not help.

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Closing A Card Hurts Your Credit Mix

Finally, closing a credit card account due to inactivity could hurt your credit mix portion of your credit score, as well.

If you only had one credit card, having that card closed would result in zero open revolving credit accounts which may negatively impact your mix of credit which accounts for 10% of your FICO score.

Ashley Davison Of Credit Saint Responds

Hi, Hershel, and thanks for your question.

Youre right that your score should recover in a few months. As long as youre not planning on applying for any new loans or credit cards during that time, it would not be too much of a problem. However, its always a good idea to make sure the information in your is as accurate as possible.

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You Closed A Credit Card

When you close a credit card, you’ll have less total available credit, because the credit limit on that card gets removed from your credit file. That means if you’ve been carrying any balances, they’ll make up a greater part of your total credit, causing your credit utilization to increase.

Another problem with closing a credit card is that the average age of your credit accounts could decrease. This is a smaller part of your FICO® Score, but it still counts for 15%.

How to fix it — Check your credit utilization and reduce it if it has gotten too high, either by paying down balances, asking for credit limit increases, or opening a new credit card.

While there’s no quick way to raise the average age of your credit accounts, you can at least avoid applying for any new credit accounts until your score has improved.

File A Dispute With The Credit Reporting Agency


Initiate a claim directly with the credit bureau by writing a dispute letter. The purpose of this letter is to notify them that you believe certain information in your credit file is inaccurate.

The Fair Credit Reporting Act requires creditors to report accurate information about every account. This means they have a legal obligation to review, investigate, and respond to your claim. This process is free and can take up to 30 days to complete.

You can begin a dispute with any one of the credit bureaus through their websites or via mail. The leading credit reporting agencies are Equifax, Transunion, and Experian. Its essential to have documentation and to be precise about the information you are challenging.

Each of the three major credit bureaus has an online section dedicated to walking consumers through the process of disputing a claim online. It would be best to dispute the entry with each credit bureau to make sure the removal is complete across the board. After receiving the initial claim, the credit bureau will contact the source of the erroneous information and dispute it on your behalf.

How to file a dispute letter:

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Closing A Card Hurts The Length Of Your Credit

Having an inactive account shut down can hurt your length of credit history which impacts 15% of your score. If the card closed is one of your older credit cards, this can reduce the average age of your accounts which will lower your score.

Additionally, if it is your oldest credit account, it could impact your score even more since the scoring formula typically looks at your oldest credit line, too.

What Is A Pay

A pay-for-delete letter is when you offer to settle a balance on a negative account in exchange for the debt being deleted from your credit report. The creditor or debt collector is not obligated to agree to your request, but it may be worth sending the request. If you’re sending the request to a collection agency, you’ll need to offer enough for it to be profitable for them to settle. There’s no way to know how much that is, though. If you’re close to the seven-year mark for the item to fall off your credit report, it may not be worth sending a pay-for-delete letter.

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Your Lender Has Changed Names

Often, if your lender has recently changed their business name, your old account will be removed from your reports and replaced by an account with the updated name. This type of maneuver is usually relatively easy to spot: If a new account has been added to your credit reports with the same open date, balances and other information as the account thats been removed, a lender name change is probably the cause.

How Long Does A Derogatory Account Stay On Your Creditreport

Why Did My Credit Score Drop?

Derogatory accounts will generally stay on your creditreport for seven years but can show for as long as 10 years for some accountsand in some states. This will usually depend on the laws in your state and thetype of debt.

Bankruptcies, the granddaddy of debts, will stay on yourcredit report for up to 10 years in most states while foreclosures and studentloans will drop off after seven years. Tax liens and simple late payments willgenerally drop off after seven years.

Its important to understand when the clock starts tickingon different types of derogatory accounts and how that affects when they dropoff your credit report. This is usually the date the late payment or other badmark was added to your credit but can also be the date of your last payment orwhen the collection agency took over. If you make a payment plan with thecollection agency or they file a change to the debt, that might start the clockover and it could be another seven years before it drops from your report.

Check your credit report and score with TransUnion credit monitoring. Get a 30-day free trial here.

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Negative Credit Report Entries That Impact Your Score The Most

Accurate items will stay on the credit report for a determined period. Fortunately, their impact will also diminish over time, even if they are still listed on the report. For example, a collection from a few years ago will bear less weight than a recently-reported collection. If no new negative items are added to the report, your credit score can still slowly improve.

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.

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