Why do closed accounts count toward total accounts but not towards credit age?
Closed accounts will continue to count towards payment history, but not towards total accounts or credit age. Closed accounts remain on your record for up to 10 years if you closed them in good standing. If an account was closed involuntarily, it will remain on your record for up to seven years.
Closing an account, however, may adversely affect your credit utilization ratio, which takes into account the amount of available credit compared to the amount of credit you’ve used. For example, if you have three credit cards with credit limits of $1000 each and a balance of $200 on one, $400 on another, and $0 on the third, you have a total credit limit of $3000 of which
$600 of credit is used. Your credit utilization ratio is 20%, which is pretty good. If you close the account that has a zero balance, you now have two accounts with a $2000 credit limit, of which
$600 is used. Your new credit utilization ratio is 33%, which may negatively affect your credit score because, even though you haven’t added any debt, you now have a higher amount of debt in relation to your credit limit. Alternatively, if you paid off the credit card with a $400 balance and closed the account, you’d have a $2000 limit, of which $200 is used. Your credit utilization ratio would then be 10%, which may improve your credit score.
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