Your credit report is an ever-changing snapshot of your financial life. When you open a credit account, the credit issuer will generally report it to the credit bureaus. If the account is closed, the creditor will report the status of the account as such. It may also report how well you've handled the payments on the account, and it is this information that will determine whether or not the credit bureau labels the account as "potentially negative."
Potentially Negative Closed
A closed account is a credit account that is no longer active. You can no longer use a closed account to make transactions. The credit bureau may designate an account on your credit report as "potentially negative" if it contains data that a lender may consider derogatory when reviewing your credit history, according to Experian. The bureau itself does not decide if an account is derogatory, however. That is a determination made by the lender. A "potentially negative closed" account means a closed account whose account history may be viewed as derogatory by a lender. An example of a "potentially negative closed" account is a credit card that's closed but has a history of late payments.
Accounts are notated as "potentially negative" by the bureau so that you will have a general idea of how a lender may view the data listed on your credit report. That designation is for your eyes only, however. When anyone else views your credit file, such as a lender, he will not see the "potentially negative" notation. But the lender will see that the account is closed. The lender will also see any history associated with the closed account.
Under the Fair Credit Reporting Act, a negative closed account will remain on your credit report for up to seven years. After this time frame, the credit bureaus will purge it from your credit file and lenders will no longer see it when viewing your credit file. As long as the negative account is on your report, it may carry the "potentially negative account" designation. Once the account falls off the report, any designations associated with that account will be removed as well.
Accounts can be closed for a number of reasons. A lender may close a credit account due to lack of payment. You may decide to close a credit account because you no longer need it. But according to Experian, "who" closed the account has no bearing on your credit or credit score at all. Credit scoring models, such as FICO, don't differentiate between who closed the account when you're calculating your credit score. Once the account is closed, the status of that account may read "closed at consumer's request" or "closed at creditor's request" on your credit report. However, some creditors report this information to the bureaus, but others do not.
- Experian: “Potentially Negative” Items Listed on Credit Report
- Experian: Ensuring Account Is Reported “Closed”
- Experian: When Are Closed Accounts Deleted?
- Equifax.com: Length of Credit History
- Experian. "When Do Late Payments Get Reported?" Accessed July 6, 2020.
- Experian. "Closed Credit Card Accounts Showing on Credit Report." Accessed July 6, 2020.
- Consumer Financial Protection Bureau. "How Long Does Negative Information Remain on My Credit Report?" Accessed July 6, 2020.
- Experian. "Closed Accounts and Your Credit History." Accessed July 6, 2020.
Mack Mitzsheva is a tax lawyer, personal finance expert and the author of the forthcoming ebook, "10 Best Places to Work Online." Mitzsheva is also a social media entrepreneur with five successful sites under her belt. Always innovative, Mitzsheva is currently developing a cutting-edge budgeting app for newlyweds.