Should You Pay Off Closed or Charged-Off Accounts?

How Long Do Closed Accounts Stay on Your Credit Report?

Closed accounts can stay on your credit report for seven to 10 years, depending on whether the account was in good standing when it was closed.

• Accounts closed in good standing can remain on your credit report for up to 10 years from the date you close the account. A closed account is considered in good standing if you made all your payments on time (or within 30 days of the due date) and paid off the account in full.
• Accounts closed with negative credit report entries will stay on your credit report for seven years from the date the account is closed or charged off. These may include accounts with late or missed payments or accounts that the creditor closed because you defaulted on the payments.

Credit card accounts might be closed at your request, or the card issuer may close your account if it is inactive for too long. Loan accounts will be closed when you've paid off the loan; however, your lender may also close the account if you fail to make your payments.

Learn more: What Does "Closed Account" Mean on Your Credit Report?

Do Closed Accounts Affect Your Credit Score?

Closed accounts can affect your credit score either positively or negatively depending on the status of the account when it was closed.

• Accounts closed in good standing may help your credit score by demonstrating a history of timely payments. During the 10 years the accounts remain on your credit report, they provide evidence that you've managed credit responsibly.
• Accounts closed with negative entries, such as late payments or charge-offs, can significantly damage your credit score. The negative impact gradually lessens over seven years, at which point the account drops off your credit report.

Even if your account was in good standing, a closed credit card can have an indirect negative impact on your credit in the following ways.

• Credit utilization ratio: Your credit utilization ratio, an important factor in your credit score, represents the amount of credit you're using compared to your total available credit. A credit utilization ratio above 30% can do more significant damage to your credit score, but the lower utilization, the better. Closing a credit card could increase your credit utilization by reducing your available credit.
• Credit mix: Lenders like to see that you can manage different types of credit, including a mix of revolving and installment credit accounts. Credit mix accounts for 10% of your FICO^® Score^Θ. Depending on how many kinds of accounts you have, closing one type of account could hurt your credit mix.
• Length of credit history: The length of your credit history, or how long you've had credit accounts, makes up 15% of your FICO^® Score. Closing a credit card, especially if it's one of your oldest accounts, may lower the overall age of your credit accounts and negatively affect your credit. However, if you closed your account in good standing, that positive credit history will remain on your credit report and contribute to your positive payment history for 10 years.

Learn more: What Affects Your Credit Scores?

Should I Pay Off Closed Accounts on My Credit Report?

If a closed account is unpaid, paying it off can positively impact your credit score. Paying the debt will update the account status on your credit report to show that it has been paid in full. Although this won't remove the negative marks from your credit report, lenders generally look more favorably on a paid-off debt than on one that hasn't been paid.

A charge-off means your creditor has given up expecting you to pay the debt and has written it off as a loss. This typically happens after several months of missed payments. When paying off a charged-off account, it's important to make sure you pay the correct creditor.

If the creditor hasn't sold or transferred the debt to a collection agency, the charged-off account will show the balance owed. You can contact the original creditor to pay off the account.

If your creditor sells the charged-off account to a collection agency, however, paying the original creditor won't affect the account status. The balance on the original account will update to zero, and you'll need to pay the collection agency, which is now the legal owner of the debt.

Once you've paid in full, the entry for the collection account will be updated to note it's been paid. Some newer credit scoring models omit a collection account from your score calculation once it's paid off. Depending on the credit scoring model used, you may see an immediate positive impact to your credit score.

Learn more: Which Debts Should I Pay Off First to Improve My Credit?

How to Remove Closed Accounts From Your Credit Report

Closed accounts can't be removed from your credit report if the information is accurate and current.

However, if you think information about a closed account is inaccurate, or is old enough that it should have come off your credit report, you have the right to dispute the item with the appropriate credit bureau. Each consumer credit bureau—Experian, TransUnion and Equifax—has its own process for filing a dispute, but you can typically do so online, by mail or by phone.

The credit bureau has 30 days to investigate your dispute—or 45 if you provide additional documentation following the initial dispute—and you will receive notice of their decision at the end of that period. Filing a dispute can result in the information being verified, updated or deleted.

The Bottom Line

Reviewing your credit report can reveal which accounts have the biggest effect on your credit score. You can check your credit report and FICO^® Score from Experian for free to see the key factors impacting your credit score. As you work to increase your credit score, Experian's free credit monitoring service can help you keep tabs on your progress. You can view your FICO^® Score over time, get alerts of important changes to your credit report and discover tips to help you improve your credit.