What Does “Closed Account” Mean on Your Credit Report?

What Does "Closed Account" Mean on Your Credit Report?

A closed account on your credit report means that you once had a credit account, but it's no longer open for making charges. You might choose to close an account if it was a joint account you had with an ex-spouse, or you opened a credit card to get a welcome bonus but no longer want to keep it. But in some cases, the issuer may close the account if:

• You seldom use the card.
• You frequently miss payments, pay late or exceed your credit limit.
• Your credit scores have dropped significantly.

Just know that closing a credit account won't erase any negative activity. Late payments will remain on your credit report for up to seven years, regardless of whether the account is open or closed. But as time passes, the impact on your credit scores will gradually diminish.

Closing an account does not mean you no longer owe the balance. You'll still be responsible for making payments, and your balance may continue accruing interest. If you stop paying altogether, the creditor may transfer the account to a collection agency.

How Long Do Closed Accounts Stay on Your Credit Report?

The answer depends on whether the account was in good standing. This means you've made all of your payments on time, as agreed. But the timeline is different if you have a history of missed or late payments.

• Accounts closed in good standing can stay on your credit report for up to 10 years from the date the account was closed.
• Accounts closed with negative credit report entries will remain on your credit report for seven years from the date of the first late payment that led to the account closure.

Do Closed Accounts Affect Your Credit Score?

A closed account can be good or bad for your credit scores, depending on the account's payment history before it was closed. If the account was in good standing, that positive payment history can stay on your credit report for 10 years. That means even a closed account can help you maintain good credit scores.

But closing an account will not erase a spotty payment history. And again, you can expect late payments to stay on your credit report for seven years—even if the account is closed.

Regardless of whether the account was in good standing, the act of closing it could potentially hurt your credit scores by:

• Reducing your total available credit: As a result, your credit utilization rate will likely increase. This is the percentage of available credit you're currently using, and it's an important factor in determining your FICO^® Score^{☉ Θ}. The lower this number is, the better.
• Decreasing the average age of your credit accounts: Your length of credit history accounts for 15% of your FICO^® Score.
• Impacting your credit mix: Having a mix of different types of credit can be good for your credit scores. Closing an account could make your credit mix less diverse.
• Prompting you to apply for new credit: Depending on your finances, closing one account might force you to open another. Applying for new credit can temporarily decrease your credit scores.

Can You Remove Closed Accounts From Your Credit Report?

You cannot remove accurate information from your credit reports. That includes closed accounts, whether they were in good standing or not. But if there are closed accounts that you believe are there in error, you have the right to dispute that information. That might be the case if:

• The account is not yours, suggesting that your identity was stolen.
• There is inaccurate negative information attached to the account, like missed payments that never happened.
• You never closed the account or received information that the creditor was closing it.
• Enough time has passed that the account should have dropped off your credit report but hasn't.
• The closed account is listed more than once.

How to Remove Closed Accounts From Your Credit Report

If you spot inaccurate information on your credit report, you can take the following steps to dispute it.

1. Obtain Your Credit Reports

There are three major credit bureaus (Experian, TransUnion and Equifax), and each one maintains its own credit report. You can check your credit report for free anytime from Experian. You can also visit AnnualCreditReport.com to view your other credit reports.

2. Identify the Errors

Scan your credit reports for inaccurate information. That might be regarding a closed account or an active one. For example, you might come across:

• Inaccurate account balances
• Late payments or delinquencies that shouldn't be there
• Accounts you don't recognize
• Incorrect personal information
• Duplicate accounts

3. File a Dispute

Each credit bureau has its own process for disputes. You can do it online, by phone or through the mail.

Be sure to include any supporting documentation. That may include correspondence you've had with the creditor that backs up your dispute.

4. Monitor the Investigation

After you submit a dispute, Experian will thoroughly investigate it and work toward a resolution. Disputes are typically resolved within 30 to 45 days. If you disagree with the dispute decision, you can contact the original creditor and provide proof that their records are incorrect. From there, you can resubmit a dispute with additional documentation that strengthens your case.

One other option is to add a statement of dispute to each credit report that explains why you think certain information is inaccurate. When lenders pull your credit report in the future, they'll see your comments.

Should You Pay Off Closed Accounts on Your Credit Report?

If you still owe money on a closed account, paying it off can help improve your credit. Doing so will change the account status to "paid in full," which can show lenders that you're a responsible borrower. In some cases, it might make up for negative information on your credit report.

If the creditor sells your debt to a collection agency, the original account balance should change to zero, and a new collection account should appear on your credit report. Paying off that new account could help your credit, depending on the credit scoring model being used.

The Bottom Line

Having a closed account on your credit report isn't inherently good or bad. It just means you can no longer add new charges to that account. If it was in good standing, it should drop off your credit report in 10 years—and that positive payment history can help keep your credit scores going strong. No matter what, the most important thing is to continue paying off your balances, even if an account is closed.

To see how closed accounts—and other items on your credit reports—impact your FICO^® Score, sign up for free credit monitoring from Experian. You'll get real-time alerts to changes to your credit, and you'll see how each credit move can impact your score.