Why Closed Accounts Remain on Your Credit Report
Your credit report is a type of scorecard that summarizes how responsibly you handle borrowed money. The information on it is used to calculate your credit score, and the score is used by potential lenders to decide whether to loan you money. Your credit history and score may also be used by potential landlords when they’re evaluating an application for an apartment.
Both positive and negative information remains on your credit bureau report even after an account is closed. This can help you as long as you pay your bills on time. You may wonder why closed accounts remain on your credit report. The reason paying off an account doesn’t stop it from continuing to be reported by the credit bureau is so that your payment history can be evaluated by potential lenders to give them an idea of whether you’re a creditworthy borrower.
How Long Closed Accounts Remain on a Credit Report
The amount of time a closed account stays on your credit report depends on whether information about the account is positive or negative. If you had financial problems and didn’t pay the loan on time or ended up in collections, it impacts your credit and continues to affect your credit for seven years from the original delinquency date. If you filed Chapter 7 bankruptcy, the credit bureau may continue to report this account for up to 10 years.
If you paid the loan as agreed and none of your payments were 30 days late, the credit bureau is reporting it as a positive item even though the account is closed. Positive items can remain on your credit report for 10 years, which is a good thing because they’re helping to boost your credit score.
If you decide to close a credit card account or another revolving account, it can reduce the amount of your total available credit and raise your credit utilization, which may cause your credit score to go down a bit. Your credit utilization should stay below 30 percent whenever possible. For this reason, don’t be in a hurry to close a credit card account you’re not using unless it’s costing you money because of an annual fee or because you can’t resist the temptation to use the credit line. Closing an account that you’re not using can also lower the average age of your accounts, another factor used in calculating your credit score.
Know What the Credit Bureau is Reporting
At least once a year, review the information on your credit report to make sure it’s accurate. If you have closed an account, it shouldn’t be reported by the credit bureau as open.
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