Question: My credit card account was closed 6 years ago. I paid a reduced payment at the request of the credit card company, but never missed a payment. Unbeknownst to me, they closed my other account. I can no longer make purchases, but I technically still have an account with them. When I went to have it opened back up, they said there was nothing that could be done once it was closed. I have a small balance left but will have it paid off very soon. Is it hurting my credit more now?
Creditors can close a credit card account without the user’s permission for many reasons and without warning. Generally, this happens if there’s prolonged inactivity, overspending, or a history of missed or late payments. They are also likely to close the accounts of users participating in hardship programs or payment plans, which seems to be your case. Once your credit card is closed, you can no longer use that credit card, but you are still responsible for paying any balance you still owe to the creditor. In most situations, creditors will not reopen closed accounts.
Closed accounts and your credit reports
Closing a credit card can hurt your credit score because it affects your utilization ratio, which is the second most important factor determining your score after your payment history. Your utilization ratio is how much you owe on your credit card accounts compared to how much credit you have available. The negative effect of a closed account on your credit report depends on the circumstances leading up to the closure and the health of your current credit report. If your account was closed six years ago, the worst of it is already behind you. The effect of negative accounts lessens with time, so your closed account is no different. However, the remaining balance is still affecting your utilization ratio. So, it’s a good idea to pay the remaining balance and move forward with a plan to rebuild your credit.
Tips for rebuilding your credit
The path to rebuilding your credit will be as unique as your credit report. The general advice to boost your credit report consists of paying on time and keeping your credit utilization low. Then, you can work on maintaining a healthy mix of credit cards and loans while opening new credit sparingly. Ultimately the right strategy for you will depend on your current circumstances. For instance, do you have any other credit cards besides the one that was closed? If so, you can focus on using those credit cards strategically. If you don’t, you will need to open a new credit line. For example, you can open a starter credit card or a secured account to help you establish a positive credit history until you can get a regular credit card.
Start your rebuilding strategy by reviewing your credit reports. You can get a free copy of each of your credit reports, Equifax, Experian, and TransUnion, through AnnualCreditReport.com. Checking your credit history can help you discover any areas that require attention. If you want to see your score, you will have to purchase it directly from each credit bureau. Sometimes, making sense of it all and creating a plan to improve your credit can be daunting, but you are not alone. The NFCC has a vast library and resources, including certified financial counselors to help you along the way. You can reach counselors online or by calling 1-800-388-2227.