Canceled credit cards don't leave your credit report quicklyEven closed card accounts stay on your credit report for up to a decade
Dear Credit Score Report,
How
do I get those old credit cards that have not been used in years off of my
credit report? -- Brooke
Hey Brooke,
Closing an old credit card account will get it removed from
your credit report, but it's a slow process -- and one that's not necessarily
good for your credit.
In order to get a card removed from your credit report, it
first needs to be closed by the bank or borrower. Then you must wait, since that
account may remain on your credit history for a decade. That means as a
borrower, you simply "cannot 'remove' a credit card from your credit
report," says Steven Katz, spokesman for credit bureau
TransUnion. "A
closed account with negative information will remain on a consumer's report for seven years. One with no negative information
will remain for 10 years," Katz says.
But years of patience don't mean you'll necessarily be
rewarded with a higher credit score. In fact, an account closure could cause your score to fall. "The consumer may want to think twice before closing her
longest standing accounts, particularly if they have always been paid in a
timely manner, because those accounts are a positive part of her credit history
that will ultimately be removed from the report based on their closure," Katz
says.
The damage to your credit score, however, may happen much
faster. "In the short term, it's
also important to note that closing revolving credit accounts can increase
credit utilization, particularly if the account closed had a high limit with
little or no balance being carried," Katz says, referring to the ratio of revolving
balances to credit limits. "Credit scoring formulas do not look favorably
upon high credit-utilization ratios," he says.
The exact damage to your credit score depends on how
significantly that ratio changes. As an example, say you have five cards each
with a credit limit of $2,000, giving you a total credit line of $10,000. Imagine
also that you have $3,000 in debt spread across two of those cards. That would
give you an overall utilization ratio of 30 percent. Then, three accounts with
zero balances are closed, leaving you with $3,000 in debt and a total credit
limit of just $4,000. That change would produce a new utilization ratio of 75
percent ($3,000 divided by $4,000), leaving you much closer to maxing out your
available credit. Expect your credit score to fall in response.
Perhaps that possible outcome will change your mind. But even if you decide to leave those unused
cards alone, your banks may not: Moody's Investors Service reported in
September that among the actions lenders are taking to protect themselves from
losses, banks have been seriously trimming credit lines for unused cards. "Issuers
cut credit lines substantially over the past two years, but a large portion of
those cuts were inactive accounts," Moody's analyst Jeffrey Hibbs told
industry publication PaymentsSource.
So if you continue to let those old cards lie dormant, the banks may decide to
close them for you. To prevent that from happening, dust off that old plastic
and put a small charge on it now and again, making sure to always pay the
balance in full each month.
Still, if you're determined to remove those old accounts
from your credit reports despite the dangers, here's the abbreviated version of
how to protect your credit score when canceling a credit card:
-
Pay off your
debts. Getting balances to zero will help prevent scoring damage that can
result from a change in your utilization ratio. (Zero debt divided by any
credit limit will always equal zero.)
-
Correct
errors on your credit reports. Look for any mistakes on your credit reports,
such as cards you've never carried or inaccurate address information, and get them corrected.
-
Be
selective. Rather than closing all your oldest cards, choose just
one or two -- such as those with annual fees -- for cancellation. If your heart is set on canceling several cards, try and stagger those closures, waiting six months to a year before repeating.
-
Increase
your other limits. Place a call to customer service and request limit
increases for the cards you plan to leave open. If granted, those increased lines
can help guard your utilization ratio.
-
Contact
your card issuers. For the cards you want removed from your credit reports,
confirm that your card balances are zero and then let them know you want the
accounts closed.
Then, as noted earlier, you'll need to wait. In the
meantime, keep up good borrowing habits by always paying your bills on time,
keeping debt levels as low as possible and opening new accounts only when
necessary.
Using that approach, even if you shed some old accounts,
you'll continue building a positive history for those cards that remain open.
Good luck!
-- Jeremy
See related: Canceling a card can hurt your credit score, To preserve credit score, don't leave credit cards unused, How to cancel a credit card, Decade-old credit mistakes shouldn't appear on your report
Jeremy M. Simon is a former CreditCards.com reporter who wrote about credit scoring, economic data, credit card crime and other issues. He is based in Austin, Texas. He is a graduate of Vassar College and has previously worked for Thomson Financial in New York City, where he wrote about the stock markets, and Texas Monthly, as well as several publications in Austin.
Send your question to The Credit Score Report.
Published: October 12, 2010
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