Young couples starting out often use credit to pay large expenses. Your credit score affects your ability to get a mortgage, finance a car and get a credit card. Whether you intentionally cancelled a credit card or it went into default, that credit card account affects your credit score. How long a canceled credit card affects your score depends on whether it is listed as paid-as-agreed. As the accounts age, they affect your credit score less. Eventually, they drop off your account entirely.
Canceled Credit Cards
If you defaulted on your debt and your card was cancelled, of course this will lower your credit score and hinder your ability to get credit. But even if the cancellation was voluntary, your credit score might drop, and here's why: part of your credit score is determined by comparing the amount of your credit card debt divided by your total credit limits. Suppose you have two credit cards, one with a $3,500 balance and a $5,000 limit, and one with no balance and a $10,000 limit. You have $3,500 of debt and a total credit limit of $15,000. Your "utilization ratio" is about 23 percent -- you're using 23 percent of available credit. If you cancel the $10,000 card, however, your utilization ratio shoots up to 70 percent -- and a high utilization ratio tends to drop your credit score.
The length of time a cancelled credit card stays on your credit report depends on the status of the account. Credit card accounts with late payment information or a charge-off status stay on your credit report for seven years from the date the account first came due. Positive, paid-as-agreed accounts appear on your report for up to ten years from the date of last activity. According to Equifax, positive, paid-as-agreed accounts could stay on your report indefinitely.
Once the statute of limitations for reporting passes, your negative credit card entry drops off your report. The credit reporting agency should automatically drop the account. If it doesn’t, you may have to file a dispute to get it removed. All three credit reporting agencies provide dispute resolution processes to remove inaccurate or old information from your credit report.
Checking Your Credit Report
You can get a free annual credit report from each of the three major credit reporting agencies via AnnualCreditReport.com. You may also get a free credit report if you are denied credit based on your credit report, suspect identity theft or are unemployed. All three credit reporting agencies will also provide your credit report more often for a fee. And if you want your credit score -- not just the credit reports -- you must also pay a fee.
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