An account that is closed but still carries a balance is considered an active financial obligation, even though no further transactions (like new charges) can be made. This situation is common with closed revolving accounts (like credit cards) or installment loans that were closed for new borrowing but remain in repayment.
Accurate and consistent reporting of these accounts is essential to maintain transparency for consumers and lenders—and ensure FCRA compliance.
Why Proper Reporting Matters
Incorrect reporting of closed-but-unpaid accounts can:
- Artificially inflate or deflate a consumer’s debt-to-income ratio.
- Mislead lenders about the borrower’s open credit lines.
- Result in compliance issues for the data furnisher under the FCRA.
Steps for Reporting Closed Accounts with Outstanding Balances
1. Set the Account Status to “Closed”
Use a closed account status code, but keep the balance field active. Example status options may include:
- Account Closed by Consumer
- Account Closed by Credit Grantor
- Account Closed – Transferred (if applicable)
This distinguishes the account as no longer open for new use while still reflecting the consumer’s financial obligation.
2. Report the Current Balance Accurately
The Balance Amount should reflect the amount still owed on the account.
- For revolving accounts (e.g., credit cards), this shows the remaining unpaid charges.
- For installment accounts (e.g., loans), this reflects the remaining loan principal (and possibly interest, if applicable).
Also, continue reporting the Scheduled Monthly Payment Amount.
3. Maintain the Full Payment History
Continue reporting monthly updates reflecting the consumer’s performance:
- On-time payments
- Delinquencies
- Paid in full status once the balance reaches zero
If the consumer is still making payments, the account should remain active in reporting, even though it is closed to new borrowing.
4. Retain All Date Fields
The following fields must still be included for proper credit scoring and retention periods:
- Date Opened
- Date Closed
- Date of Last Payment
- Date of First Delinquency (if applicable)
5. Avoid Misclassifying as Charged-Off or Paid
Unless the account has been charged-off, settled, or paid in full, do not assign those status codes. An unpaid closed account should only reflect those designations when resolution occurs.
Compliance with the FCRA
To stay compliant, furnishers must ensure:
- Accuracy – The account’s closure and balance must both be correctly reported.
- Completeness – Payment history and key dates must remain in the record.
- Timeliness – The account should be updated on a monthly reporting cycle until paid off or written off.
Impact on the Consumer’s Credit Report
- Credit Score Considerations
- Closed accounts with a balance still affect credit utilization.
- If it’s a credit card, a closed card with a high balance can hurt credit scores due to a high utilization ratio.
- Lender Transparency
- Helps lenders accurately assess repayment risk and total obligations.
- Differentiates a borrower with an active obligation versus someone who has fully resolved their debts.
Conclusion
Closed accounts with outstanding balances are not “finished” obligations. They must be reported in a way that reflects both the closure of new credit access and the ongoing responsibility to repay. By accurately showing balances, status codes, payment history, and all relevant dates, data furnishers not only remain FCRA compliant, but also provide essential clarity to both consumers and creditors.