It has always been common knowledge that closing aged accounts will hurt your scores. I have always believed that this due to one losing age now that the trade line is closed. As I go continue to educate myself on credit scoring and credit repair, I have learned that how closed accounts impact credit score is minimal.
Closed Accounts Impact Credit Score In Limited Ways
Revolving utilization is the only area of scoring where closing an account can hurt you. Closed accounts with a revolving balance is still counted against utilization; however, a closed account with a no balance would not be.
In terms of credit history, closed accounts are treated no differently than open accounts. Meaning, the age on a closed account that let’s say is 20 years old gets counted the same as an account that was closed six months ago. In fact, the length of credit history gets counted for every trade line on your report.
Keep in mind that closed accounts in good standing are generally removed from your credit report after 10 years, whereas an open account in good standing can remain indefinitely. This is the main reason you don’t really need to close older accounts if they don’t have an annual fee and they don’t have a balance.
In the short term, the only harm by closing a revolving account is due to the utilization percentage you lose, while over the long term, a closed account will be removed from your credit file after 10 years, which could lower your score due to the loss of history. This is how closed accounts impact credit score.
Recap on How Closed Account Impact Credit Score:
- Short term. No impact. Closed account are factored into your average age of accounts.
- Long term. After 10 years, your account will age off and it could cause score impact IF you have a thin file.