Do I need a closure letter if a debt is paid off?

If your credit report already shows the account as closed, generally no. If it still shows as open, or the account doesn't show properly on your report, a closure letter proves it's gone.

Why would a bank count a debt I've paid off?

If the bank thinks the account is still open, it assumes a repayment or a limit you no longer have, which reduces how much you can borrow.

Do buy now pay later accounts show on my credit report?

Not always clearly. Reporting has been patchy, so if you've closed one, a closure letter saves the bank asking whether it's still open.

How do I get a closure letter?

Ask the lender, by phone or through their app, for a letter confirming the account is paid in full and closed. It can take a few days, so request it as soon as you pay the debt off.

Is paying a credit card to zero the same as closing it?

No. An open card with a limit still counts against your borrowing power even with nothing owing. Close it and get the closure letter.

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Do I need closure letters for debts I've already paid off?

Bayley Clarke · Mortgage broker on the road · Last checked 11 November 2026 · 3 min read

The short answer

It depends on whether the debt is actually showing as closed on your credit report, because that's what the bank checks when it assesses your home loan. If it's showing closed, you're generally fine. If it isn't, a closure letter proves it's gone, and the bank won't count it.

Then there are debts that don't always show properly on your credit report in the first place, like buy now pay later accounts and some car finance. For those, we generally want closure letters up front, because the bank is going to ask whether they're open or closed.

The 60 second version, filmed from the driver's seat. The rest of this page is the detail underneath it.

Why a paid-off debt can still cost you

When the bank works out how much you can borrow, it counts every debt it thinks you still have. A car loan you paid off last year still costs you borrowing power if the bank believes it's open, because it'll assume a monthly repayment you no longer make. Same with a credit card you cancelled but that's still listed with a limit.

So the question isn't whether you've paid it off. It's whether the bank can see that you've paid it off. If your credit report shows the account as closed, job done. If the account is still showing as open, or the closure hasn't updated yet, we show it's been closed with a closure statement from the lender, and then of course the bank isn't going to include it when assessing how much you can borrow and whether you're going to be approved.

The debts that don't always show up

Some credit doesn't always land on your credit report the way you'd expect. Buy now pay later accounts have historically been patchy, and some car finance, particularly finance arranged through a dealer, doesn't always show the account itself clearly, even though the enquiry from when you applied is sitting right there on your file.

That's the problem. The bank sees an enquiry from a finance provider, it sees repayments to that provider going out of your bank statements, and it can't see from the credit report whether the account is still running. So it's going to ask. For those, we want closure letters, because it's going to come up anyway.

Getting the letter

A closure letter, sometimes called a payout or closure statement, is a simple letter from the lender confirming the account is paid in full and closed, with the date. Most lenders will email one if you call or ask through their app. It can take a few days, so ask for it as soon as you pay something off, not the week your application goes in.

If we can give the bank that assurance up front, great. It's one less question for the bank to ask, and it means you're one step closer to getting that home loan approved.

The honest bit: closing it matters as much as paying it

Paying a card down to zero isn't the same as closing it. If the account is still open with a limit, the bank counts the limit against your borrowing whether you use it or not.

So when you clear a debt you won't use again, close the account, ask for the closure letter, and keep it with your documents. It's ten minutes of admin that can save a back and forth with the bank at the worst possible time.

Cleaning up old debts before you apply?

A 30 minute call. We go through your credit report and statements, work out which accounts the bank will ask about, and line up the letters before we lodge.

Book a 30 minute call Call 0437 189 939

No cost to you. The bank pays me when a loan settles. · How I get paid

Next question

Do I have to pay off my debts for pre-approval, or can they be cleared before settlement?

Generally no rush. A pre-approval can be set up on the basis your debts get paid out and closed.