The Better Credit Blog | Answering Your Credit Questions & Free Negotiation Dispute Letters

A Bank Account Closure Does Not Affect Your FICO Score

Reader’s Question

We are a military family and move often. We had one open bank account in our old home town that we never used, but since we both had to be present to close, just have never closed. My husband paid a bill online a while back but clicked the wrong checking account and paid it out of this account by mistake, which did not have enough funds.

Since we never use the account whenever we get mail from them I simply throw it in the bank statement pile and never look at it. Then, I got what looked to be a debt collection notice, which I found wierd since we have great credit and aren’t over due on anything. Since the overdrawl had not been paid off in 90 days they closed our account. I of course paid it right away, but how bad will this bank account closure affect our current credit and for how long?

My Response

Hi [name removed],
It sounds like it never went to a collection agency and the notice was just from the bank. A bank closure itself does not negatively affect your credit –an overdraft fee that went into collections, however, does.

I think your best course of action would be to call the bank and kindly explain to them the situation just like you did in your email to me. More often than not you will find that small local banks are usually helpful with these types of situations. However, if you are dealing with a large bank such as Chase or Wells Fargo, your chances of resolving this are slim. Nonetheless, if in fact the overdraft did go into collections, it will remain on your credit report for 7 years and it will have a significant effect on your credit rating. It is for this reason, I strongly suggest you try to work with the bank as to ensure nothing is recorded on your credit report.

Posted in Reader Questions | 9 Comments »

Calculate When A Negative Entry Will Be Removed From Your Credit Report

Reader’s Question

I have two negative accounts on my credit report that have been sitting there for a few years. Other than those, my credit report has only accounts that are on time. I have recently started to try and really jump my credit score up and was wondering if these were even worth putting my time and money into fixing, or will these slide off of my account eventually? I have always wondered when exactly the 7 year rule goes into effect. My first account was first reported in March of 2002 and was last reported on in 2007. My second account was first reported in April of 2005 and last reported in May of 2005. Does the 7 years start tolling from the first reporting date or the last?

My Response

Hi [name removed] -
Those two accounts are pretty old and I personally wouldn’t spend a whole lot of time trying to get them removed. They are so old that the impact on your credit is pretty small. I know it feels like an itch that you really want to scratch, but they will be gone in no time. Regarding the 7 year rule: In most cases it all has to do with what is actually being reported –that is, you are looking at 7 years for each negative entry. Therefore, if the first negative entry was reported in March of 2002, you are looking at 7 years for that entry. Each month a negative entry is reported, that entry will remain for 7 years. In other words, don’t look at the account as a whole when attempting to figure out when the account will be removed –look at each individual negative entry associated with that account and figure that that entry will remain for 7 years.

Hope this helps,
-Ryan

(1 votes, average: 4.00 out of 5)

Posted in Reader Questions | 1 Comment »

How Reopening a “Closed By Creditor” Credit Card Account Can Improve Your Credit

Reader’s Question

Dear Ryan,
I had a credit card that that the bank closed because of late payments. I know I have been paying on time and paid the credit card off 6 months later. The bank has offered to open the account again, but I am curious if this is a good or bad thing. On my report it says closed by creditor, if it is reopened will it just show opened?

My Response

Hi [name removed],
Generally, open credit card accounts look better on your credit report than closed accounts because open accounts show you have used the card responsibly –the card hasn’t been “closed by creditor“. Before doing anything, I would ask the creditor if they are going to open a new account or simply reopen the account they closed. If they are just going to open a new account, the “closed by creditor” entry on your credit report will remain and a new entry for the new account will be reported –this won’t do you any good. However, if they are actually reopening the closed account, this could possibly improve your credit because the “closed by creditor” entry will be changed to “open”. I would ask this before making a decision.

Hope this helps,
Ryan

Take Home Point

Credit card accounts marked as “open” on your credit report are generally better for your credit score than a closed account. This is due to a couple of things: First of all, an open account is building payment history. Payment history has a big impact on your credit score –the more history (positive of course), the better your score will be. Secondly, an open account indicates that you haven’t screwed up so bad that the creditor closed (or charged off) the account. Therefore, if given the opportunity, it’s wise to ask the creditors of any closed accounts on your credit report to consider reopening the account.

(2 votes, average: 5.00 out of 5)

Posted in Reader Questions | 2 Comments »

Creditor Reported Late Payment Less Than 30 Days

Reader’s Question

Hi there,
I had a bill due around May 2nd, but was not able to pay the bill until May 29th. However, the creditor reported it on my credit report as a late payment. I heard that the creditor only shows deliquencies after 30 days. Am i correct?

My Response

Hi [name removed],
Generally it is the case that creditors only report late payments that are 30+ days late. However, this is not a rule and the creditor could technically report it late at their discretion (given that the payment was indeed late). Nonetheless, I would at least give them a call and ask if they will give you a break and remove the negative entry –you might be surprised.

Hope this helps,
Ryan

(1 votes, average: 4.00 out of 5)

Posted in Reader Questions | 1 Comment »

Allowing A Collection Agency Access to Your Bank Account

Reader’s Question

Dear Ryan,
I did not give a debt collector my bank account number, but I saw they tried collecting from my account. Is there any other way for them to get my account information, legally? Or should I pursue legal actions against them?

My Response

Hi [name removed],
There are a couple of things you should do before pursuing legal action. First, you need to verify and be certain that it was actually this company that was attempting to collect from your bank account. I say this because unless you gave them your bank account information, there is no way they could have legally obtained it. Furthermore, they need your permission before they can take any funds from your account. Second, if you have determined that it was indeed this company, I would call them and yell at them for awhile about this issue. I would do this before pursuing legal action because lawyers aren’t cheap and you don’t want to be hasty about getting a lawyer and filing suit.

Hope this helps,
Ryan

(1 votes, average: 5.00 out of 5)

Posted in Reader Questions | 1 Comment »