Fair Credit Reporting Act News
Investigating how the Fair Credit Reporting Act controls consumer credit score impacts from closed credit accounts.
Tuesday, November 12, 2024 - Closed credit accounts can affect a consumer's credit score, thus occasionally their creditworthiness in the perspective of lenders may be compromised. The Fair Credit Reporting Act (FCRA) guarantees accuracy, openness, and fair reporting, therefore mitigating the effect of these closed accounts. This law lets customers confidently negotiate the credit terrain knowing they have rights and instruments to help control the possible consequences of account closures. A credit account terminated does not instantly show up on a credit report. Closed accounts with favorable payment histories--those free of delinquencies or missing payments--may stay on a consumer's credit record under the FCRA for up to ten years. Since a good credit history still shapes the consumer's whole credit profile, this clause helps lessen the effect of account closings on credit ratings. The FCRA guarantees that consumers are rewarded for prudent credit use even when an account is terminated by letting closed accounts with positive histories stay.
On the other hand, if a closed account had a poor history--that is, defaults or missed payments--it may remain on a credit report for up to seven years from the date of the first delinquency. Although this may have an impact on a consumer's credit score, the FCRA mandates that credit reporting companies adhere to rigorous deadlines for reporting negative information, therefore avoiding obsolete or erroneous data from permanently lowering a consumer's score. The bad record has to be deleted once the seven-year term ends so the customer may reconstruct their credit score free from the weight of past debt. Should a closed account show improperly on a consumer's credit report--that is, if it is marked as closed by the lender but stays shown as active--the FCRA gives customers the ability to contest the inaccuracy. Legally mandated, credit bureaus must look at any reported errors within 30 days (or 45 days should further information be provided). Should the closed account status be confirmed as an error, the credit bureau has to fix it, therefore avoiding possible negative effects on the credit score of the customer. The FCRA's dispute system is a vital tool for customers hoping to keep a good credit profile to guarantee proper reporting of canceled accounts.
The FCRA also covers how closed accounts--especially revolving credit accounts like credit cards--affect credit use. Closing a credit card account might affect the consumer's credit use ratio or percentage of credit used in relation to the overall available credit. Because it implies more credit risk, a high credit use percentage might reduce a credit score. However the FCRA's need for openness implies that consumers have the ability to view exactly how their credit use is computed, therefore empowering them to take proactive efforts to control their credit and minimize any effect from closed accounts. The FCRA explains facts surrounding a closed account should it cause financial difficulty and offers consumers the ability to add a "consumer statement" to their credit record.
