Closed Account On Credit Report
A closed account on credit report can have a positive or negative effect on your credit score, depending on whether it is closed in good standing ($0 balance) or not.Closed account in good standing
A closed account with $0 balance is considered a closed account in good standing. For example, when you finish paying off a loan or close a credit card, the account status is changed to “Closed” and the balance is set to $0.
Closed accounts in good standing remain on your credit report for at least 10 years. They just don’t count as much in your score as open, active accounts. In fact, a closed account in good standing may even have minor adverse affect on your credit score because:
- The account’s credit limit no longer contributes toward your total credit limit, increasing your total utilization
- If the closed account is your oldest, your credit report becomes “younger”, dipping down your score.
- You lose positive payment history to augment your score.
More about the effects of closing credit card accounts here.
Closed account in “bad standing”
When you stop paying your debts, the creditor may close the account for further payments, write it off and sell it to collection or file a law suit against you.
In that case, the account status is changed to “Closed” but the account balance remains to reflect your remaining debt. The account becomes inactive, and you can no longer make payment to it.
That doesn’t mean that you don’t owe the money any more. The original creditor is no longer trying to collect it from you, but may file a law suit against you or sell the debt to collection companies, in which case the same debt will re-appear as a new collection account.
In both cases, closed accounts in bad standing are considered a serious delinquency and may drive your score down by more than 100 points!
A closed AND charged-off account will remain on your credit report for 7 years and will have adverse effect on your score whether paid, settled, or unpaid.