Closed Credit Accounts and Credit Ratings

Closed credit accounts have an effect on credit report ratings whether the closures are initiated by the consumer or by the lender. Consumers may wish to close an account for convenience so as to no longer receive bills and lender information, or the lender could choose to close the credit account for inactivity. The impact on a credit file is the same, regardless of how the closure came to be. Credit score computations are all about the numbers; you shouldn't adversely impact yours for convenience or inactivity.

Credit Ratings
Your credit report consists of individual identifying factors, information and facts that are recorded publicly and a list of consumer credit accounts. Credit accounts include credit cards, home loans and other personal loan accounts. The three digit number computed from the itemized information listed in the report is termed your credit score. Your credit score is an indication of your personal financial fitness at a specific point in time. Your credit report lists closed credit accounts as ‘closed by creditor’ or, alternatively, ‘closed by consumer’. The effect of closed credit accounts on your credit score can have instant as well as long-term consequences.

Credit Score Considerations
Credit scores are computed from five major considerations which include outstanding personal debt, repayment history, types of consumer credit, credit history and new credit. Of these five considerations, the actual outstanding personal debt computation makes up 30 percent of the total credit rating and credit history comprises 15 percent. Closed credit card accounts effect a person's outstanding personal debt instantly and impact your credit history after 10 years, or even sooner. Credit bureaus eliminate closed credit accounts from credit files sooner if the creditor closes the credit account, but they may wait to eliminate it up to 10 years if you close it. Open credit accounts with a positive repayment history help to elevate your overall credit rating.

Outstanding Debt Computations
The outstanding debt consideration of your overall credit score is computed based on a person's outstanding credit balances in relation to their readily available credit. Closed accounts reduce the readily available credit portion of this credit to debt percentage. If you have the same amount of outstanding personal debt as you did prior to closing the credit account, reducing the overall available credit negatively effects your credit rating.

Closed Credit account Exceptions
Closed credit accounts may not have such a significant adverse effect on a consumer's credit rating if you have alternative open consumer credit accounts with a comparable history. A closed account that is 10 years old has less influence if you also maintain several additional open credit accounts that are also at least 10 years old. Yet another exception is if the closed credit account had a modest line of available credit as compared with your current open accounts.