It is a popular belief that closed accounts are immediately removed from your credit report. That is a common misconception. Although closing an account restricts you from using it, it does not magically vanish from your credit report as your credit report contains information for all accounts whether they are open or closed. Closed accounts may still affect your credit score until they are finally removed. The good news is that it is possible to remove a closed account. There are three options: request that the creditor take it off, reach out to the three credit bureaus to delete incorrect data or you could simply wait until the closed account eventually falls off your credit report.
Closed accounts and your credit score
There are several factors that contribute to your credit score. These include your credit utilization rate, payment history, how old your accounts are, how frequently you open new credit accounts as well as what kind of lines of credit you use. A closed account may have a small or big impact on your credit score and that is based on whether there is still a balance left as well as the type of credit account. If you close a credit card account, be mindful of your credit utilization rate going up as the credit limit on that account will no longer be available as soon as you close the account. This could be detrimental to your credit score as a higher credit balance with reference to your overall credit limit indicates a higher risk of not paying back your debt. Installment loans, such as auto loans, on the other hand do not have an impact on your credit utilization rate as credit cards, but they do have a positive impact on your credit score as long as you make regular on-time payments. The moment you pay off an installment loan and it is marked as paid in full and closed, the account can no longer boost your credit score; however, the payment history is still part of your credit history. All closed accounts, and it does not matter if they are credit cards or loans, can have a negative impact on your credit score if they have any derogatory marks, which include late or missed payments or were sent to collections. This negative information may remain on your credit report for up to seven years. Closed accounts that are marked as “paid as agreed” may remain on your credit report for as long as ten years from the time they are closed.
When to remove a closed account
Requesting to remove closed accounts that have negative information may be beneficial to your credit score as closed accounts with derogatory information will only damage your credit score further. It is worth noting that which closed accounts should be removed depends on the situation. If the account shows a positive payment history, it would not be a good idea to remove that account as the entire payment history may disappear from your credit report along with the closed account. If a loan is paid off in full, the creditor may remove the payment history of the loan after closing the account as creditors are not obligated to disclose account information to the three credit bureaus. If this happens, your credit score may drop by many points.
Paying off a debt may appear to be beneficial to your credit score, but it actually comes with its consequences. To potential creditors, you may seem to be less creditworthy due to the credit history becoming shorter and the lines of credit decrease. Therefore, it would be in your best interest to proceed with caution when removing closed accounts from your credit report and choose wisely which ones should be removed. Even though positive payment history may disappear from your credit history once an account is closed, not all is lost. You may contact the creditor and request that they reinstate your payment history.
Sometimes, it would serve you best just leaving a closed account instead of removing it if it demonstrates your creditworthiness. Nevertheless, requesting to remove closed accounts with derogatory information may be just what you need to improve your credit score. Understanding your options will facilitate the process.
Removing a closed account
Removing a closed account from your credit report is a whole process. There are a few ways to make this happen. You have the option to file a dispute when it involves inaccurate information, write a goodwill letter or, if all else fails, wait until the closed account is eventually taken out of your credit report.
File a dispute
According to the Fair Credit Reporting Act, credit reporting agencies are obligated to correct or remove information on your credit report that is incorrect; however, they will only do this if you file a dispute requesting to correct or delete inaccurate data. Disputes to the three major credit bureaus may be submitted online or by mail. Every dispute should include your name, account number, the reason you are filing a dispute as well as documentation that supports your reason for submitting a dispute. Once your dispute is submitted, the credit bureaus are required to review it and contact the lender or creditor to confirm that the information is indeed inaccurate. They have 30 days to complete their investigation and correct the errors if the dispute is approved. If the credit bureau removes the inaccurate information, they can only reinstate it if the lender or creditor provides documentation that the information was accurate and there was never an error.
Filing a dispute allows you to request inaccurate information to be removed; however, that does not apply to closed accounts if the information on your credit report is actually accurate. Initiating a dispute with the sole purpose of removing negative information that is accurate will not be considered, but there are still options to request that a closed account be removed from your credit report.
Write a goodwill letter
You might want to consider writing a goodwill letter politely requesting the creditor or lender to remove a closed account along with its credit history. It differs from a dispute as you may request negative information that pertains to a closed account to be removed from your credit history even though it is accurate. Nevertheless, the creditor or lender are not legally required to delete this information if it is accurate.
A goodwill letter may be an effective strategy when there are dire circumstances, such as severe illness or becoming seriously injured, which prevented you from working and making on-time payments on a credit card or loan. If you are able explain your unique situation that caused you to default on a loan or credit card and have shown positive payment history in the past as well as have tried to pay off your debt since then, the credit bureaus may consider your goodwill letter. It is worth a try.
If you defaulted on a credit card and your balance was sent to collections, you may take into account a pay-for-delete agreement with the collection agency. They may consider removing the collection account from your credit history in exchange for paying the debt in full or paying a lesser negotiated amount. This does not always work with all debt collectors as they are not legally required to remove any collection accounts regardless if you pay off your debt, but it is something to consider. Even if the debt collector does indeed delete the collection account, it does not mean that the negative information associated with that credit card will magically disappear as well. The original account with all the derogatory information that piled up before it was sent to collections will most likely remain on your credit report. Nevertheless, there will be less negative information to show on your credit report.
Wait until it falls off
Your options may be limited if the negative information on your credit report is in fact correct and the creditor or lender are reluctant to delete this information. Sometimes, the only option left is to wait until a closed account ages to the point that it finally falls off your credit report. Negative information on your credit report will eventually be removed from your credit history in about seven years and that starts from the moment an account was reported as delinquent and not when it was closed. It is a good idea to be proactive by checking your credit report a few times a year not only to be aware when closed accounts will be deleted, but also to ensure your credit history is accurate and monitor for any signs of identity theft before it becomes problematic to handle.
Stay on top of your credit history
If you defaulted on a credit card or loan and this was the reason for closing the account, requesting to remove the closed account will help you stay on top of your credit history. Negative information is detrimental to your credit score, but focusing on good credit habits moving forward, such as making payments on time and keeping accounts open and in good standing, will improve your credit score.