Do Closed Accounts Affect Your Credit Report?

Closed accounts affect credit report ratings, whether the closures are initiated by the consumer or by the creditor. You may wish to close an account for convenience so that you no longer receive statements and creditor information, or the creditor may close an account for nonactivity. The impact on your credit report is the same, no matter how the closure came about. Credit score calculations are all about the numbers; don't negatively impact yours for convenience or inactivity.

Credit Rating Definition

Your credit report consists of personal identifying factors; information that is recorded publicly; and a list of credit accounts that include credit cards, mortgages and other loan accounts. The three-digit number calculated from the itemized information listed in the report is known as your credit score. Your credit score is an indicator of your financial health at a particular point in time. Your credit report lists closed accounts as "closed by creditor" or "closed by consumer." The impact of closed accounts on your credit score can have both immediate and long-term consequences.

Credit Score Considerations

Credit scores are calculated from five primary considerations: outstanding debt, payment history, types of credit, credit history and new credit. Of these five considerations, the outstanding debt calculation makes up 30 percent of the overall score and credit history makes up 15 percent. Closed credit card accounts immediately impact your outstanding debt and your credit history after 10 years, if not sooner. Credit bureaus remove closed accounts from the report sooner if the creditor closes the account, but they may wait up to 10 years to remove it if you close it. Open accounts with a positive payment history help to elevate your overall credit score.

Outstanding Debt Calculations

The outstanding debt consideration of your overall credit score is calculated on the basis of your outstanding balances in relation to your available credit. Closed accounts reduce the available credit portion of the credit-to-debt ratio. If you have the same amount of outstanding debt as you did before closing the account, reducing the overall available credit negatively impacts your credit score.

Closed Account Exceptions

Closed accounts may not have such a large negative impact on your credit report if you have other open credit accounts with a similar history. A closed account that is 15 years old has less impact if you also keep several other accounts open that are also 15 years old. Another exception is if the closed account had a small line of available credit compared with your open accounts.