Repairing your credit means regularly looking at your credit report, and doing everything possible to make improvements.
Removing things like late payments, medical debts, and repossessions are all great ways to improve your credit score. But what about closed accounts?
You’re scanning through your credit report, looking for things to improve, and you spot something — an account you closed years ago has lingered like a bad smell. Questions start to fill your head…
Why is it still there? Is it negatively affecting the credit score? Can I get rid of it?
While the urge to scrub it clean might be strong, removing closed accounts from your credit report isn't as simple as pressing "delete". And even if it was, it isn’t always beneficial to do so.
In this blog, I’m going to take a deep dive into closed accounts, exploring the possibilities and dispelling some myths along the way.
To make this as simple as possible to follow, I’ve broken this down into three section:
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Understanding Closed Accounts on Your Credit Report
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The Real Impact of Closed Accounts on Your Credit Score
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Strategies for Managing Closed Accounts
By the end of this post, you’ll know everything you need to know about closed accounts, and whether or not you should remove them from your credit report.
Understanding Closed Accounts on Your Credit Report
So, what exactly are closed accounts, and why do they stick around?
Closed accounts are simply credit lines or loans you've used previously and no longer utilize. Think of them like retired veterans of your credit history, standing tall as a testament to your financial past.
Now, there are several myths circulating out there about how these "financial ghosts" affect your credit score. Let’s go through them one-by-one:
Myth #1: Closed Accounts Hurt Your Score
False! They actually contribute to a longer credit history, a key factor in calculating your score. And the longer the history, the more established and reliable you appear to lenders.
Myth #2: They decrease your credit mix
Not true! Having a diverse mix of credit, including both revolving accounts (credit cards) and installment loans (car loans, mortgages) demonstrates responsible financial management and can boost your score. Closed accounts still count towards this positive diversity.
Myth #3: They negatively affect your utilization ratio
Nope! Even though you might not actively use the credit limit on a closed account, it still factors into your overall credit utilization ratio (amount of credit used vs. available). A lower utilization is favorable, and closed accounts help keep that ratio healthy.
The Real Impact of Closed Accounts on Your Credit Score
So now you know what’s myth and what’s fact about closed accounts on your credit report, now it’s time to dig a bit deeper into the actual impact they have.
Because your credit score is a snapshot of your financial situation, a longer credit history speaks volumes about you as a responsible borrower. This means that as long as your accounts were handled responsibly (payments on time, or at least within 30 days) they’ll actually boost your score. This is because closed accounts can remain on your credit report for up to 10 years, contributing valuable longevity to your credit history.
On the other side of that coin, this also means that if you have closed accounts with missed or late payments, this will likely have a negative effect on your credit score. BUT those negative entries will only stay on your credit reports for seven years, meaning those accounts could still give you a boost after a few years.
Closed accounts can also have a big impact on your credit utilization ratio. This is because closing a credit account will lower your overall borrowing limit. This means that if you have balances on other credit accounts, your utilization ratio will go up.
The reason this is all important is that account history and credit utilization are two of the biggest factors that affect your credit score.
If the account is already closed, you don’t need to worry too much about this. But it’s a consideration to make if you’re debating whether or not to remove a closed account from your credit report.
The only time you might want to consider taking action is if the closed account has a negative payment history, and you think it’s lowering your credit score.
If that’s the case, the next section is for you…
Strategies for Managing Closed Accounts
As I’ve mentioned, if you’ve got closed accounts with positive payment histories, leave them alone. Hands off! Don’t even think about touching them.
But if you’ve identified a closed account with missed or late payments you believe is dragging the score down, there are a couple things you can do:
Dispute Inaccuracies
If the closed account shows inaccurate information that could be bringing down your score, you should dispute it with the credit bureaus. This is where you flag errors on your credit report, and ask the bureaus to remove them from your account. This is a four step process:
Identify any inaccuracies: Carefully review your credit report and pinpoint any specific errors on the closed account. This could be anything from an incorrect balance, late payment that was paid on time, or even an account you never opened.
Gather Evidence: Collect any documentation that supports your claim. This could include payment receipts, bank statements, account closing notices, or correspondence with the creditor regarding the error. The stronger your evidence, the better your case.
Send your dispute letter: This is where you clearly explain the error, state your desired outcome, and attach copies of your supporting documentation
Follow-up: Credit bureaus are required to investigate your dispute within 30 days, but it’s still worth tracking the dispute and following up. Respond to any inquiries they send, and challenge the outcome if it’s not what you were hoping for.
Caution: Dispute wisely — while disputing inaccuracies is crucial, exercise caution before disputing valid closed accounts solely to boost your score. Unnecessary disputes can backfire, potentially harming your score and raising red flags for lenders.
Request a goodwill removal
Alternatively, you can request a ‘goodwill deletion’. This is where you send a polite, written request directly to the lender asking them to remove a closed account from your credit report as a gesture of goodwill. Unlike a removal letter, it doesn't claim inaccuracies or errors, but instead appeals to the creditor's leniency based on your past conduct.
This is far from a surefire method, but if disputing isn’t an option or has failed, it’s worth considering this approach.
While it’s far from guaranteed, goodwill removal letters can be especially effective with rare late payments or closed accounts with only minor negative marks. This is because you can point to your positive behavior the rest of the time as examples of your responsible borrowing.
Frequently Asked Questions About Removing Closed Accounts from Credit Report
How to remove closed charged off accounts from credit report?
While disputing errors is possible, you’re unlikely to get accurately reported charge-offs removed from a closed account. Instead, focus on building positive credit history for long-term score improvement.
How long does it take for accounts to be removed from credit report?
Closed accounts in good standing stay on your credit report for 10 years, while those with negative information typically fall off after 7 years.
Should I pay off closed accounts?
Generally, no, paying off closed accounts won't improve your score much. Instead you should focus on responsible credit management for long-term benefit.
How bad is a closed account on a credit report?
Closed accounts in good standing can be neutral or even beneficial. But closed accounts with charge-offs or late payments can hurt your score for up to 7 years.
Why is a closed account still reporting?
Accurate closed accounts (positive or negative) stay on your report 7-10 years to reflect your credit history, but inaccuracies can still be disputed for removal.
What should you do now?
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If you're looking to handle more clients without getting bogged down by the admin, start a free 30-day trial today to see how Credit Repair Cloud makes your life easier.
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Join the Start Repairing Credit Challenge to improve your credit score and discover how to earn extra income repairing credit for others.
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Check out the Credit Repair Cloud blog to learn more about credit repair techniques and strategies.
