Practice Good Credit Habits Going Forward
Bank account information is not part of your credit report, so closing a checking or savings account won't have any impact on your credit history. ... The company that buys the debt can then report the collection account to the credit reporting companies, which could cause scores to plummet.
Here's how: Certain closed accounts can increase your credit utilization rate. When you close a credit card account specifically, you are reducing the amount of open credit available to you. This can cause your credit utilization rate to increase, which could have a negative impact on your credit score.
A credit card can be canceled without harming your credit score—paying off your balances first is key. Closing a credit card will not impact your credit history, which factors into your score.
Paying a closed or charged off account will not typically result in immediate improvement to your credit scores, but can help improve your scores over time.
If the creditor reported you to the credit bureaus, your strategy has to be different. Ignoring the collection will make it hurt your score less over the years, but it will take seven years for it to fully fall off your report. Even paying it will do some damage—especially if the collection is from a year or two ago.
There are several factors that make up your credit score, and paying off debt does not positively affect all of them. Paying off debt may lower your credit score if it changes your credit mix, credit utilization or average account age.
Here are some of the fastest ways to increase your credit score:
The standard advice is to keep unused accounts with zero balances open. The reason is that closing the accounts reduces your available credit, which makes it appear that your utilization rate, or balance-to-limit ratio, has suddenly increased.
If your account was closed in good standing, there is no law requiring it to be removed from your credit report in a certain time period. It could stay on your credit report indefinitely, but will likely be removed ten years after it was closed based on the credit bureau's guidelines for reporting closed accounts.
A 609 letter is a method of requesting the removal of negative information (even if it's accurate) from your credit report, thanks to the legal specifications of section 609 of the Fair Credit Reporting Act.
1 To help on your way to better credit, here are some strategies to get negative credit report information removed from your credit report.
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