How Long Do Closed Accounts Stay on Your Credit Report?
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Many of us have closed a credit card account without realizing how much it impacts our credit scores. So just how long do closed accounts stay on your credit report? According to the consumer credit reporting agency TransUnion, a closed account -- one in good standing with a history of on-time payments -- stays on your report for up to 10 years. Such an account typically helps your credit score. An account with negative information like late or missed payments may stay on your credit report for up to seven years after it is closed. This type of account closure can hurt your credit score.
Here, we look at the reasons an account may be closed, why some account closures hurt more than others, and what you can do to strengthen your credit report.
There is more than one way accounts get closed. They include the following.
Here are three reasons someone might be tempted to close a credit card account.
Let's say you signed up for a credit card your first year of college, and have now jettisoned it for a travel rewards card that helps cover the cost of an annual getaway with friends. Closing the older account you signed up for in college may seem to make sense. After all, you never plan to use it again. Still, closing an unused credit card can have consequences.
Maybe you were tempted by a credit card with a fantastic signup bonus, and ignored that the card charges you an annual fee. Long after you've moved on to another card that better meets your needs, you call the credit card issuer of the first card and ask them to drop the annual fee, but they deny the request. Again, you believe it makes sense to cancel that card, and there are ways to close an unused credit card without hurting your credit.
Perhaps you sat down one day to pay bills and came face-to-face with how much you owe in credit card debt. You wanted nothing more than to rid yourself of the debt -- and rid yourself of the temptation of the credit card.
Credit card companies are famous for closing accounts when the situation suits them. A credit card represents a loan, and it's the credit card company that takes the risks. Most card companies have a finite amount of money they can lend, and if a consumer is not doing their part -- by using the card often enough, or paying it down -- it's up to the company to protect its bottom line.
Here are two of the top reasons a creditor may close an account.
Everything about doing business, from advertising to customer service, costs money. Likewise, every credit card account costs the company money to maintain. Its business model is to make money by charging interest and fees. If you don't use the card for a while, the bank finally realizes they're losing money. Let's say you've had a credit card for several years and only used it long enough to take advantage of the signup bonus. You may try to log into your account one day and find it's gone. It was the credit card issuer's way of ghosting you and moving on to another customer who might use the card and earn the company some cash.
A credit card company may allow for a few mistakes. You may make a late payment, then pay less than the minimum payment a few months later. Your debt may even go to a collection account for a debt collector to deal with. At some point, the lender may say enough and close your account.
People are often surprised to learn that creditors are under no legal obligation to inform you before (or after) 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 (in hopes of getting paid), 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.
A closed account may impact your credit by a little or by a lot. Here's why: Five factors go into calculating your credit score, and two of them are impacted by closing a card. Let's take a look at those two.
Length of credit history refers to how long you've been using credit. It makes up 15% of your FICO® Score. It makes sense that creditors care how long you've had credit, because the longer you've been managing credit cards, the better idea they have of how consistent you are in doing so. Remember the scenario in which you were approved for a credit card your freshman year of college? Canceling that old credit card hurts this portion of your credit score more than canceling new credit.
Your credit utilization ratio is also impacted by canceling a card. Also known as "amounts owed," credit utilization refers to how much you owe compared to how much total credit you have available. Your credit utilization ratio makes up 30% of your credit score, and experts also suggest that you keep your ratio below the same number, 30% -- although the lower, the better.
This table shows how canceling one card can impact your ratio. Let's say you have four credit cards and cancel one. Each card has a credit limit of $5,000, and you're carrying debt on two of the cards you plan to leave open.
| Status of Card | Total Available Credit | Total Balances Carried | Credit Utilization Ratio |
|---|---|---|---|
| Before Closing Unused Card | $20,000 | $6,000 | 30% |
| After Closing Unused Card | $15,000 | $6,000 | 40% |
Closing one card in this case bumped you up over the "30% or lower" ideal credit utilization range, so it lowered your credit score.
No hit on your credit score is fun, but if your account was closed with no balance due, you probably will not see a huge drop in score. On the other hand, a closed account with a negative payment history will likely hurt your score more. In either case, here are some quick tips for rebuilding your credit.
A dip in your credit score isn't the end of the world. The great thing about making mistakes is the opportunity to learn from them. And when it comes to personal finances, you can expect to make some mistakes along the way. It's how many of us learn to handle money like pros.
Some other questions we've answered:
It depends. A closed account impacts credit utilization and length of account on your credit report. Each can reduce your credit score. If the account had a low credit limit and was relatively new, the impact on your credit score is likely to be little more than a ding. If your credit limit was high and you've had the card for years, you can expect a bigger hit to your credit score.
According to Lexington Law, there are three ways to have a closed account removed from your credit report.
These six tips represent a good starting point for rebuilding credit. It's okay to pick and choose what works best for you.
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