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Topics addressed on May 30, 2007:
Closing an account does not cause the history to be deleted
If we cancel a credit card, I know that the credit score gets reduced. But will the transaction history associated with the credit card be lost forever? If the history gets lost with the credit card cancellation, will it get restored if I re-open the credit card?
Canceling, or closing, a credit card sometimes can cause a temporary decrease in credit score because it affects the overall balance-to-limit ratio. However, the history for that account will not be lost immediately.
When you close an account, you lose the available credit associated with it. That reduces the sum of your credit limits. Your total balances do not change, making it appear that your total balances have increased compared to your total available credit. That ratio is called the balance-to-limit ratio.
A high balance-to-limit ratio has proven to be a strong indicator of risk. When that ratio increases suddenly, it can negatively impact credit scores.
For that reason, it generally is best for most people to leave unused accounts open. Just be sure to keep the credit card in a safe location, or shred it.
If you choose to close an account you will not lose the history right away. Closed accounts with a zero balance and no negative history remain 10 years from the date they are reported closed.
Closed accounts with negative history, such as late payments, remain seven years from the original delinquency date of the negative information.
The result is that positive accounts will remain part of your credit report longer than negative accounts. Retaining that information is beneficial because a long, positive credit history is one of the best indicators that you will be a low risk customer.
Thanks for asking.
- The "Ask Experian" team