How Much Does it Affect Credit Score If Account Not Closed by Customer?

According to MyFICO, your FICO credit score ranges from 300 to 850, and the higher the number, the better your credit is considered to be by lenders. FICO uses the information contained within your credit report when determining your score. If you have a credit account that was closed, but not by you, you should understand how that affects your credit score.

Identification

FICO determines a credit score based upon five factors. The largest factor is how well you pay your bills, which accounts for 35 percent of the score. Thirty percent measures the amount of debt you have. Fifteen percent is the length of your credit history. Another 10 percent is the mix of credit types present on the report, and the final 10 percent reflects the amount of new credit you've applied for recently. Who closes an account -- customer or creditor -- has no effect on a FICO credit score.

Considerations

When calculating the 30 percent portion of a credit score concerning amount of debt, FICO uses an equation called the credit utilization ratio. It measures how much available credit you have versus the amount of existing debt. The higher the available credit relative to the amount of debt, the lower this ratio and the higher your score. An account that's closed, either by the customer or creditor, decreases the amount of available credit you have, which may lower your score. That's because you have the same amount of debt but less credit available, so your credit utilization ratio increases, which reduces your credit score.

Prevention/Solution

According to MyFICO, you can take certain steps to improve your credit score. How much debt you have is the second largest factor in determining your score, 30 percent. If a creditor closes your account and you still have an unpaid balance on it, paying that debt off can help increase your score. Also, making payments on time is the single largest contributor to a good credit score. If you owe a balance on a closed account, continue to make on-time payments until the account is paid off.

Warning

Be wary of a business or company that claims it can repair your credit and improve your credit score. According to the Federal Trade Commission, this may be a scam. Under the Fair Credit Reporting Act, you can dispute inaccuracies on your credit reports and repair your credit yourself at no cost. Credit bureaus are required to remove errors from a credit report if, after a receiving a dispute, it cannot verify the information. The law does not require the bureaus to remove accurate information, however.