A closed credit account is no longer active, meaning that no future transactions can be processed. For example, a credit card holder may choose to close their account if they no longer use the card, have fears of identity theft, or have financial hardship.
A misconception exists that closing a credit card or paying off a car or student loan will remove any details related to the account from your credit report. Credit reports do contain closed accounts from data furnishers that continue to impact your credit and might be best removed.
A closed accounts removal letter may present an opportunity to boost your credit score, particularly when involving negative entries. Some of the key elements of these letters include your name and account information, taking responsibility, and citing your efforts to improve.
John Smith
123 Main Street
Los Angeles, CA 90232
RE: Account #02-44575
XYZ Credit Monitoring Services
Debt Settlement & Payment Department
2010 Experian Rd.
Chicago, IL 60018
To Whom It May Concern:
The credit information currently on my credit report contains an entry showing a late payment for March 2018 for my closed XYZ credit card account #02-44575.
I acknowledge that I was unable to fulfill the terms of the account agreement by failing to properly adhere to the monthly payments. In late February 2018, I was involved in a serious bicycle accident that resulted in my inability to work for several months.
During the period of my recovery, I struggled to maintain my financial obligations and had late payments. I have since been carefully budgeting and satisfying all of my monetary responsibilities and payments to improve my credit score.
It would assist me tremendously if you could make a goodwill adjustment that removes this negative payment entry from my three credit bureau reports. This is a closed account that represents a past failure that I am hopeful will not continue to hinder my future.
Thank you for your consideration.
There are no assurances or guarantees when sending these types of goodwill adjustment letter requests; however, they are worth the effort. Some lenders reply to consumer disputes stating that they have policies against granting these and other goodwill letter requests—but others may not.
Currently active accounts in good standing
Closed accounts that were paid (settled account)
Late payments or missed payments
Unpaid collection accounts
Bankruptcy (Chapter 7)
Bankruptcy (Chapter 13)
Hard credit inquiry
Based on the above data, often a consumer may choose to simply wait it out until the negative entry is due for removal from credit bureau reports. Keep in mind that it might take a few months for all the credit bureau reports to be updated after reaching these limits.
The Fair Credit Reporting Act (FCRA) contains Section 609, which explains how consumers have a right to obtain copies of their credit file reports and related information. Section 609 requires credit agencies to disclose sources of information and other details that impact credit scores.
A “609 Credit Dispute Letter” is a term forged by credit repair and credit score improvement companies describing a strategy that attempts to force a credit reporting agency to remove negative information.
The FCRA does not actually reference any “609 dispute letter” or delete letters.
Oddly, the strategy is more closely based on Section 611 that allows for disputing credit report entries based on whether they are verifiable or substantiated. A 609 letter challenges the credit reporting agency, lender, or collector to produce documentation proving the validity of the debt.
A credit repair company will often market these dispute letter templates to consumers with bad credit or offer to send them on behalf of the consumer at a cost. Most 609 letters request original source information such as the initial signed contract or other documentation.
The 609-dispute letter strategy has traditionally produced mixed results in removing negative information. The likelihood of success may increase if the original creditor has sold the debt to a third-party debt collector that is less likely to have much of the original documentation on file.
Credit scores are calculated based on various factors including payment history, your credit utilization rate, the age of accounts, types of credit used, and more. A closed account that has an unpaid balance or other negative information clearly has an adverse impact on your credit score.
Keep in mind that your utilization rate or amount of your available credit being used also has an impact on your credit and FICO score. Generally, creditors such as credit card companies and credit unions view a utilization rate of below 30% as good.
It is important to differentiate an inactive or dormant account from one that has actually been closed. For example, perhaps you disposed of a credit card that you were no longer using but never closed the account with the creditor.
A credit card that you no longer use may still be reported by a creditor as an active account on a credit report, thus the available credit limit on the card factors into your utilization rate. Here, a consumer should assess whether closing the inactive account would increase your utilization rate.
Credit cards are among the types of credit that affect utilization rates. Many installment loans do not have a true credit limit; therefore, they will not factor into credit utilization rates that creditors analyze.
It is also possible that inaccurate information exists such as closed accounts may be incorrectly reported by a creditor as active or vice versa. Any closed account marked as “paid as agreed” or a similar positive description is likely helping your overall credit score and is best left intact.
Older closed accounts on your credit report also may benefit you by lengthening your credit history. If the only other credit accounts were just recently opened, removal of the older account could be detrimental to your credit score.
A goodwill letter is a request that asks a lender or creditor to remove derogatory information from your credit report. Unlike a dispute, the creditor has no obligation to take any action in response to a goodwill letter or assist your credit repair efforts.
Goodwill letters are most effective when consumers had some temporary difficulty that resulted in failing to make timely payments. For example, your goodwill letter may explain that you suffered a severe injury or illness that prevented you from working and created struggles with paying bills.
The effectiveness of a goodwill letter that cites extenuating circumstances is further increased when the account has since been back into good standing. Accounts that have been forwarded to a collection agency and left unpaid are less likely to be successful using a goodwill letter.
Keep in mind that some goodwill letters involving unpaid accounts may be open to a compromise. The creditor might respond to the goodwill letter stating they will consider removing the negative credit entry if the debt is paid; however, these arrangements should always be first put in writing.
The “pay-for-delete” option has risks because the organization is not legally obligated to remove the entry from your credit report regardless of whether the debt is paid. Also, if the debt was sold to a third-party collector the original creditor’s negative entry may remain and affect your credit score.
To continue learning about credit, see the following articles in the series:
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I am a Certified Lending and Credit Specialist and first gained experience fixing my own credit. My own credit scores went from the 500s to the 800s in one year. I studied economics at The George Washington University and now have my own business working with financial technology companies. I manage my own investments and live in Salt Lake County, Utah with my wife and two kids.
