cancel
Showing results for 
Search instead for 
Did you mean: 

Paying off a closed credit card?

Highlighted
Regular Contributor

Paying off a closed credit card?

Hello, I am a few months away from paying off my Chase Freedom (thats been maxed for like 6 years now)

I have a paid of Slate (0/1000)

A maxed Citi (3050/3100)

A "meh" Kay card (4800/7600)

and an ok Bank of America (3500/10000)

 

But the Chase Freedom felt the best because it was an "older" debt, i carried those balances since late 2011, the bank of america and citi balances are recent (yay tuition after not getting enough in student loans!!)

 

But I do have a closed credit union credit card (I closed it on my own accord, to lower the APR). It does not show as a negative mark or anything, but  am wondering what kind of impact it would be if I focus on paying this off (currently at 6600/11500). Would it be better than working on the currently open accounts?

Message 1 of 11
10 REPLIES
Moderator

Re: Paying off a closed credit card?

It's been theorized if not completely demonstrated that closed accounts don't factor the limit, which is one of the reason Charge Offs with balance hurt so darned badly if not paid.

 

From a pure scoring perspective, I'd pay off the closed account first; however, if the interest and any penalties (if assessed) are less than the interest on the other open CC's, I'd still go pay the highest APR one as I priotize financials > FICO.... FICO score will get there eventually as the debt is paid.

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 758, EX 2 758, EQ 8 795, TU 8 762, EX 8 786 (7/28/17)
Goal Score:    EQ 5 750, TU 4 750, EX 2 750, EQ 8 800, TU 8 Blah, EX 8 800 (01/01/18)


Take the myFICO Fitness Challenge
Message 2 of 11
Super Contributor

Re: Paying off a closed credit card?


marinersguy22 wrote:

Hello, I am a few months away from paying off my Chase Freedom (thats been maxed for like 6 years now)

I have a paid of Slate (0/1000)

A maxed Citi (3050/3100)

A "meh" Kay card (4800/7600)

and an ok Bank of America (3500/10000)

 

But the Chase Freedom felt the best because it was an "older" debt, i carried those balances since late 2011, the bank of america and citi balances are recent (yay tuition after not getting enough in student loans!!)

 

But I do have a closed credit union credit card (I closed it on my own accord, to lower the APR). It does not show as a negative mark or anything, but  am wondering what kind of impact it would be if I focus on paying this off (currently at 6600/11500). Would it be better than working on the currently open accounts?


I think you'll help your scores the most by

 

(a) getting the Citi account down to $2700 or less

(b) getting Bank of America down to $2900 or less

(c) paying off the closed account

 

 

FICO8 EQ 721 TU 772 EX 777 Total revolving credit 500k
Message 3 of 11
Senior Contributor

Re: Paying off a closed credit card?

I think too often overthinking things gets in the way of what really matters.  Obviously you want to eliminate your balances (debt).  However you get there IMO isn't important, it's just getting there.  In the meantime, you want to do it as favorably financially as possible, meaning paying the least amount of fees and interest.  As long as you are making on-time payments on all of the accounts every month and are paying down the ones that are hitting you with the most interest, your scores will end up in a good place when all the smoke clears.

Message 4 of 11
Valued Contributor

Re: Paying off a closed credit card?

On an individual card utilization basis, Fico 98/Fico 04/Fico 8/Fico 9 look at the card with the highest utilization, not the highest balance. Fico NextGen may look at actual balances but it is not widely used so best not to base a payment strategy on Fico NextGen..

 

Given the above, I would suggest paying down balances to get all cards report less than 49% utilization.Pay down the Citi to below $1500 and the Kay card to under $3700 as a 1st step to minimize potential for adverse action (CLD) on these cards.

 

During the above time, make payments on your closed account to avoid it going into collection [collections are rather bad for credit]. Once the cards are paid down, payoff the closed account completely and negotiate deletion of a collection as part of the pay off (if the account went to collection). As Revelate says, the credit limit on a closed account counts is no longer available but, the balance continues to count as a debt obligation. Therefore, any closed account with a balance hurts aggregate revolving credit utilization.

 

In the OP's case the negative impact [of the closed account] is quite substantial given the balance of $6600.

 

Edit add:

 

Ag UT % (current) = (0+3050+4800+3500+6600)/(1000+3100+7600+10,000) = (17,950)/(21,700) = 82.7% (if closed account available CL = 0)

Ag UT% (current) = (17,950)/(28,300) = 63.4% (if closed account available CL = balance).

 

Balances.jpg

 

My understanding is available CL = 0 on closed accounts; NOT the remaining balance in the Fico aggregate utilization metric.

 

 After that, I'd suggest that the OP reduce aggregate utilization to under 29% by paying down individual cards based on highest APR.

Fico 8: .......EQ 850 TU 850 EX 850 (3/2017)
Fico 9: .......EQ 850 TU 850 EX 850 (3/2017)
Fico 4 .....:. EQ 804 TU 823 EX 830 (3/2017) EX Fico 98: 839 (3/2017)
VS 3.0:...... EQ 832 TU 832 EX 832 (3/2017)
Fico 8 BC:. EQ 887 TU 899 EX 900 (3/2017)
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950 (4/2017)
Message 5 of 11
Senior Contributor

Re: Paying off a closed credit card?

TT, while your above post is 100% accurate and makes the most sense for score-maximizing purposes, it's important to recognize that your recommendation may not be the best one for financial-maximization purposes.  The OP wasn't very clear in his first post what his goal here is really... whether it is maximizing his scores while paying down his debt or paying down his debt while paying the least amount of extra money (interest) possible. 

Message 6 of 11
Regular Contributor

Re: Paying off a closed credit card?

Thank you so much guys for al the input!! My main goal is to maximize my scores, but I was wondering if I was focuing my attnetion on the wrong thing (I have only been paying the min payment on the closed acct the past few years, but if this is truly holding back my score I can focus on that). Luckily, its not showing up as a derog on my credit, I closed it (shouldnt have, should have cut up card).

 

So I have been rapidly paying down on my Chase Freedom card, since its a old debt (still active and not derog, but I did the stupid thing of maxing it out, paying min, and then using it again).  I really really want to pay it off since I have had it above my head since 2011, but maybe I try to look at bigger picture and pay it off to 29%? And then focus on Citi??

 

What are the "milestones" for utilization? Like I know of below 50% and below 30%, but any others? Would it be good to pay Chase down to 29% then move towards Citi? (for score maximization)

Message 7 of 11
Senior Contributor

Re: Paying off a closed credit card?

I feel that once you get all your balances below 50% then try to get them all below 30%. At that point start taking them down to 0, as there is no scoring penalty with having a card or two in the 20s on individual utilization if aggregate utilization is single-digit. When it comes to individual balances I think scoring maximization is often over thought. As long as you're paying down your balances your scores will respond favorably.
Message 8 of 11
Super Contributor

Re: Paying off a closed credit card?


marinersguy22 wrote:

Thank you so much guys for al the input!! My main goal is to maximize my scores, but I was wondering if I was focuing my attnetion on the wrong thing (I have only been paying the min payment on the closed acct the past few years, but if this is truly holding back my score I can focus on that). Luckily, its not showing up as a derog on my credit, I closed it (shouldnt have, should have cut up card).

 

So I have been rapidly paying down on my Chase Freedom card, since its a old debt (still active and not derog, but I did the stupid thing of maxing it out, paying min, and then using it again).  I really really want to pay it off since I have had it above my head since 2011, but maybe I try to look at bigger picture and pay it off to 29%? And then focus on Citi??

 

What are the "milestones" for utilization? Like I know of below 50% and below 30%, but any others? Would it be good to pay Chase down to 29% then move towards Citi? (for score maximization)


What are the interest rates on the cards that have balances? If you are not on a special rate for the closed card it makes sense to check through the rest of your available cards to try to shuffle things around to minimize interest cost.

I am still working on one closed card that had a special Forever low APR, but they don't give those out after the financial crisis, so your Freedom rate is probably kind of painful.

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727 FICO Simulator 2014: $20k balances = 812 FICO.
March 2017 $20k on $300k 6% util EQ 824 TU 824 EX 815

5 / 24 counting down to 1 Nov 2017... wait I guess it's 18 Dec 2017 to get 4/24
Message 9 of 11
Community Leader
Epic Contributor

Re: Paying off a closed credit card?

A secondary reason to place emphasis on cards that are at or near max is that many creditors will assess a card that retains high % util as a factor to reduce the credit limit as the card is paid down.  That can result in inability to reduce % util as the debt is reduced due to a reduction in the denominator.

 

I would focus on high % util cards to avoid credit limit decreases........

Message 10 of 11