Why Are Closed Accounts Hurting My Credit?

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Dear Experian,

My credit report from Experian shows four closed accounts as a negative toward my credit score. Three are from mortgage companies that arbitrarily transferred my recent mortgage loan to other lenders. The accounts were not closed for delinquency. The department store credit account was closed at my request with no balance because I did not use it, nor did I recall requesting it. I was subsequently told it was opened at the time of a cash or debit purchase in order to receive a discount on the purchase price.

- CLA

Dear CLA ,

Closed accounts, whether they were closed by you or closed due to payoff or transfer to another lender, are not automatically removed from the credit report. The status of the account will be updated to show that it is no longer open, but the payment history of the account will remain on your report. Closed accounts that were never late can remain on your credit report for up to 10 years from the date they were closed.

If the accounts you mentioned are showing as potentially negative, it's likely due to delinquencies noted in the history of the account. These late payments will remain on your credit report for seven years.

Why Do My Old Mortgage Accounts Still Show?

If you have a mortgage that is sold or transferred to a new mortgage lender, both the account with the previous lender and the new account will appear on your credit report. The original account will show a status of "Paid" or "Transferred/Sold to Another Lender," both of which mean the account is now closed. If the accounts were delinquent at the time they were sold to another lender, they will remain on the credit report for seven years from the original delinquency date. The original delinquency date is the date the account first became delinquent and was not brought current.

The same applies to store credit cards like the one you mentioned. When you open a credit account to receive a discount on your purchase, the lender can report that account to the credit reporting agencies. Simply closing the account does not make it negative, but any past-due charges prior to when the account was closed will still appear. Although you stated your purchase was made with cash or a debit card, some credit cards have fees associated with them. If those fees go unpaid, the credit card company can consider that amount past due.

If you feel the history on an account is being reported incorrectly, contact the company to notify them directly. You can also dispute the account information online with Experian using the Dispute Center. Be sure to provide a detailed explanation of why you feel the account is inaccurate. Experian will contact the lender on your behalf and ask them to verify the account information. If it turns out there was a mistake, the account information can be updated.

Can Closing an Account Hurt My Credit?

Although the act of closing an account is not considered negative, closing a credit card account may increase your overall credit utilization rate. Your utilization rate measures the amount of total available credit you are using on your revolving accounts, and is an important factor in most score models. When you close a revolving account, you lose that credit limit, which can cause your utilization rate to increase if you still have balances on other accounts, and in turn hurt your scores.

Thanks for asking.

Jennifer White, Consumer Education Specialist

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