Key takeaways
- Closed accounts with a positive history of on-time payments don’t need to be removed from your credit report. These closed accounts can help your credit score.
- If you have a closed account that negatively impacts your credit score, you might want to remove it from your credit report by disputing it (assuming it is either in error or not timely) with the credit bureaus or making a goodwill request to your creditor.
- Credit bureau disputes may remove inaccurate or misleading records, while goodwill requests can potentially remove negative records that are accurate.
Your credit report documents your history of credit usage. It shows how much debt you carry, how long you’ve used your credit lines and your history of on-time payments.
You probably expect to see information about active accounts on your credit reports. You may be surprised that closed accounts can remain on your credit reports for years.
Closed accounts on your credit report aren’t necessarily a bad thing. Closed accounts paid in full with on-time payments don’t hurt your credit score and may even improve it. However, closed accounts that show late payments or a default on the debt can hurt your credit score. In this case, you may want to remove the closed account from your credit report.
How closed accounts affect your credit score
To understand which closed accounts you may want to remove from your credit report, it’s helpful to know which factors influence your credit score. Your FICO credit score — the most common model used by creditors — is determined by five factors:
- Your payment history. This makes up 35 percent of your score.
- Your credit utilization ratio. This is how much debt you carry compared to how much revolving credit (like credit cards) you have access to, and it accounts for 30 percent of your score.
- The average length of your credit history. The average age of your credit accounts for 15 percent of your score.
- New credit. When you apply for a new credit account, your credit score takes a small hit. This accounts for 10 percent of your score.
- Your credit mix. Your credit mix is how much debt you carry in different categories like mortgage loans and credit cards. This accounts for 10 percent of your score.
The three credit bureaus, Equifax, TransUnion and Experian, compile this information. Credit-scoring companies use the information in your credit reports to determine your credit score. Closed accounts that remain on your report can still impact your credit score based on the five FICO factors.
If your closed account shows a history of on-time payments, it may continue to boost your credit score slightly for up to 10 years after the account was closed.
Closed accounts that show late payments, missed payments or balances going to debt collections can negatively impact your credit score for up to seven years.
When to remove a closed account from your credit report
You do not need to remove a closed account from your credit report if it is in good standing. Positive closed accounts could help your score by showing a history of consistent on-time payments.
Consequently, you should only try to remove a closed account from your credit report if it’s negatively impacting your credit score.
How to deal with negative closed accounts
If a closed account negatively impacts your credit score, you have a few options for removing this old debt from your credit report.
Option 1: Formally dispute inaccuracies on your credit report
Many consumers are surprised to learn how common it is for credit reports to contain inaccurate information. A 2021 Consumer Reports study (the latest available) found that more than a third of volunteers noted errors in their credit reports. Most errors are simple, like a wrong middle initial or address, and don’t negatively affect your credit. However, some mistakes can negatively impact your credit.
To dispute errors on your credit report, including inaccuracies about closed accounts, you need to contact the credit bureau(s) reporting the error and ask them to correct the record. In addition to your contact information, you’ll want to include the following in your dispute:
- The account number for the account in question
- A written explanation of the incorrect information and why it’s wrong
- A copy of your credit report with the incorrect information highlighted
- Any documents that prove your dispute is valid, such as receipts of payment
Credit reporting agencies are legally required to investigate your claim, usually within 30 days, and notify you of their response.
According to the Consumer Financial Protection Bureau (CFPB), you should also contact the creditor who reported the information. For example, if your Experian credit report shows a late credit card payment, you should contact both Experian and the credit card company that reported the late payment to make sure all records are correct.
Depending on the type of error, the closed account might not be removed entirely from your report if your dispute is approved. Correcting the inaccurate information may switch the closed account from a negative to a positive in your credit report.
This process is not limited to closed accounts. You can dispute any incorrect information you find on your credit report.
Option 2: Ask the creditor for a “goodwill” removal
If the information on your closed account is correct, but you still want it removed from your credit report because it’s bringing your score down, you can write the creditor a goodwill letter.
Goodwill letters are requests to have information removed from your credit report. You could ask for the closed account to be removed completely, or you could ask for the negative marks to be removed from that record.
Goodwill requests may result in having a closed account removed, but there are no guarantees.
Contacting the credit bureaus is unnecessary if you’re pursuing a goodwill removal. They will not remove accurate information at your request. However, if your creditor responds positively to your goodwill request, your creditor can ask the credit bureaus to remove the negative information from your credit report.
Again, this method is not limited to closed accounts. If you have an active account with a negative mark, you might contact the creditor and ask if they’re willing to remove the negative as an act of goodwill. The worst they can do is say no.
Option 3: Wait for the information to disappear on its own
Closed accounts on your report will eventually disappear on their own. Generally, negative information on your reports is removed after seven years, while accounts closed in good standing will disappear from your report after 10 years.
If you’re curious about which accounts are still on your report or want to monitor the information on your reports over time, get a copy of your credit reports. You can get a free copy of each of your credit reports weekly.
When to consider credit repair services
If you’re feeling overwhelmed by the idea of filing disputes with the credit bureaus or writing goodwill letters to creditors, you can consider hiring a credit repair company to handle it.
In addition to disputing errors on credit reports and making goodwill requests of creditors, many credit repair companies offer additional services, such as credit score monitoring, identity theft insurance and cease-and-desist letters to debt collectors.
Credit repair companies can’t change your credit score more than you can. They won’t dispute accurate information with the credit bureaus, and there isn’t anything they can do that you can’t. However, if you don’t have time to figure out how to do it yourself (and have room in your budget to hire someone) or you’d like experts who may have established relationships with creditors or credit bureaus and more experience in disputing errors, a company could help.
Unfortunately, with so many Americans struggling with credit score issues, credit repair scammers have emerged to take advantage of people who need help. If you decide to hire assistance, choose your credit repair company carefully.
The bottom line
Closed accounts in good standing don’t need to be removed from your credit report. They can help bolster your credit score until they naturally fall off your history.
If you are concerned about an old account negatively impacting your credit score, you can try to remove the closed account. For inaccurate records, you can file a dispute with the credit bureau(s) reporting the error. For accurate records that negatively impact your credit, you can request a goodwill account removal from the creditor that extended the loan.
Removing old negative accounts can give your credit score a quick little boost, but it’s important to remember that good credit is built slowly over the years. How you treat your credit now can dramatically impact your future credit score.
Frequently asked questions
Read the full article here
