Closed credit card with a balance

[Irene]

My credit report has a closed credit card account with around $2,500 on it. The account was closed by the lender 10 months ago. I also have 2 other credit card accounts with zero balance. My score is in the mid 600 for a few months now. Can it be that this account is affecting my score?

[Tracy Winters]

Absolutely

Closed accounts that are not in good standing impact your credit score severely. However, because in you case the account was closed by the lender there are two options – Have you continued to make timely payments on this closed account, or did you stop making payments? It makes a big difference as to how much it hurts your score.

If you’ve sopped making payments (the worst option) then the account is probably charged off by this time and probably on its way to collection. Charged-off accounts have very serious impact on your score. Probably more than a hundred points.

If you’ve continued to make the payments on time then almost no harm is done. It may be impacting your score a little because the balance-to-limit ration on closed accounts is 100%, but once the account is paid off that adverse affect on your score will be gone. In fact, the account would look as it is in good standing, which is actually good. Simply continue to pay until it’s completely paid off.

As to your other two cards with zero balance – you need to continue and use you open cards/card to build your credit. A very important part in building good credit is a stream of timely payments. You need at least 24 months of timely payment if you want to build good credit.

Simply use them for a few small purchases, wait for the statements and pay them in full (to avoid unnecessary interest payments).

Good luck

[Author]

Posts