Article by Sam Griffin - 4th November 2021

Closing A Credit Account — Why Did My Credit Score Drop?

It’s inevitable that you’ll close a credit account at some point — perhaps after finally clearing your mortgage or if you just want to change mobile phone provider. Because of this, we get loads of questions about closing accounts, and what that means for Credit Scores.

How Important Are Credit Scores?

Before we get into the detail, it’s worth mentioning that Credit Scores alone don’t give the whole picture when it comes to your creditworthiness. Scores are very useful at estimating your creditworthiness at a glance, but if you’re planning on making an important credit application at any point (such as a mortgage), you’ll want to check your Credit Report too.

It’s the detail within your Credit Report that any Credit Score is based on, and you’ll be able to ensure it accurately reflects your financial position, dispute any errors (which while rare, can happen), and see exactly what information is helping or harming you before submitting your application.

Does Closing A Credit Account Hurt My Credit Score?

It’s true that you might see a reduction in your Credit Score after closing a credit account. This might come as a bit of a surprise the first time you notice it but, rest assured, it’s no reason to worry and is perfectly normal. After all, there is nothing inherently wrong with closing a credit account if you no longer need the facility or have fully repaid the balance.

This is an example of the limitations of Credit Scores compared to Credit Reports. A reduction in your Credit Score implies you’ve done something wrong, but closing an account is typical behaviour. Only by checking your Credit Report will you be able to see precisely what information has changed.

So, why might closing an account reduce your score?

It’s not because a closed account is necessarily harmful to your Credit Score; this is a common misconception. Whether an account is considered positive or negative depends on the repayment history – whether the scheduled payments were made on time or not. If you looked after the account well, you can expect the account to contribute positively to your overall Credit Score, regardless of whether it is open or closed.

An important point is that an open account will generally carry more influence than a closed one. This is crucial because it explains why closing an account can result in a lowered Credit Score. Reducing the positive influence of an open account by closing it will mean it contributes less to your overall score than it once did.

Why Do Closed Accounts Influence Credit Scores Less Than Open Ones?

Whenever you apply for credit, the lender will check your credit history to get an idea of what type of borrower you’re likely to be. A vital part of this credit check is assessing the state of your active credit accounts, as they are evidence of how well you are currently managing your financial commitments. Your closed accounts are important too, but as they are inactive and likely older, your more relevant open accounts will be given extra attention.

As such, open accounts often influence your Credit Score more than closed accounts. That said, there are other factors to consider too, such as the account type (a mortgage account, for instance, can carry greater weight than a credit card account).

Will Closing A Defaulted Account Improve My Credit Score?

If a credit account has entered default, the lender will consider the account closed, even if there is still an outstanding balance. This is because the agreement has broken down and will have been referred to collections to recover the owed amount.

Once a default has been issued, it will severely harm your creditworthiness, regardless of whether the balance is subsequently settled or not. Paying the amount owed after default will not improve your Credit Score, as the negative impact of the default comes from the event it has been issued in the first place, rather than the balance.

Even though paying a default balance won’t directly improve your Credit Score, it’s typically the best course to protect your creditworthiness from further damage. If you leave a defaulted account unpaid, the creditor may take court action to reclaim the amount owed, resulting in a County Court Judgment being lodged against you. CCJs are even more damaging than defaults. Having both a CCJ and the respective default on your Credit Report for six years will make credit more expensive and difficult to get.

How Long Does It Take For Closed Accounts To Be Removed From My Credit Report?

Once a lender or utility supplier considers an account to have closed, it will share the new status with the relevant Credit Reference Agencies, where it will be updated on your Credit Report with each of them.

As lenders typically share new information with the CRAs on a monthly basis, it will likely take them up to six weeks to mark an account as ‘closed’ on your Credit Report.

For a closed account to be removed from your Credit Report entirely, you’ll just have to wait six years, when it’ll be taken off automatically.

It’s worth remembering that a closed credit account with good repayment history won’t be hurting your Credit Score while it’s recorded on your Credit Report – in fact, it’ll be contributing positively to the score; the bonus just won’t be as significant as it was when the account was open.

How Do I Check the Status of my Credit Accounts?

While your Credit Score can be a useful measure of your creditworthiness at a glance, it’s the data on your Credit Report that is most important. Lenders will assess the information itself to aid in their lending decisions, so you’ll want to ensure your Credit Report accurately reflects your financial position before applying for credit, especially a mortgage.

You can check the status of your credit agreements and utility accounts, as well as court information, linked addresses, financial associations, and much more, by viewing your Credit Report online. As Equifax, Experian, and TransUnion all hold separate information for you, you’ll need to check your Credit Report with all three to ensure you’ve seen everything.

The quickest and easiest way to check your complete Credit Report information from Equifax, Experian, and TransUnion – as well as supplementary data from Crediva – is to check your Multi Agency Credit Report.

checkmyfile offers the UK’s most detailed Credit Report, with data from all four CRAs on the same, easy-to-use platform. You can try checkmyfile free for 30 days, then for just £14.99 per month. Cancel online anytime, without fuss.

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