topic Re: Utilization vs DTI/closed accounts? in Understanding FICO® Scoring

Utilization vs DTI/closed accounts?

Anonymous — Thu, 08 Nov 2018 01:57:24 GMT

Hello to all.

In my rebuilding process, I am just one month into a debt management program with Greenpath. It takes a bit of setting up, but overall I'm happy with progress.

Starting scores are in the 650's range, in large part because of being multi-maxxed out. As part of the DMP, my accounts that are on the program are now closed. While I know that obviously my DTI won't change, how does closing accounts that have a balance impact my utilization?

Thank you!!

Re: Utilization vs DTI/closed accounts?

Anonymous — Thu, 08 Nov 2018 02:33:28 GMT

Two key points:

(1) FICO treats every closed card as having a credit limit of $0, even if the credit report says the limit is (say) $5000.

(2) When a card has a balance that is greater than its credit limit, FICO treats that card as having an individual utilization of > 100%. (Individual Util means the card considered by itself.)

Taken together, these two things mean that a closed card with a positive balance is considered maxxed out. That is bad for your score, since individual utilization is one of the things FICO looks at.

But FICO also looks at total utilization (which is all cards combined together). Before your cards were closed, they had credit limits of $1000, $5000, whatever. And these limits contributed to your total credit limit. But now those cards all have limits of $0.

Their balances still count, however. So your total utilization has gone up, which is also bad. In fact, it's possible that your total utilization could be even greater than 100% now.

Re: Utilization vs DTI/closed accounts?

Anonymous — Thu, 08 Nov 2018 02:45:58 GMT

Thanks for the info....this question has been bugging me. I knew my scores would take a hit when I started the Debt Management Program, and thus far they haven't yet. I'm guessing that's because I'm just one month into it, and when everything updates in December, I'll see the nosedive from the closed accounts. But this is still a move in the right direction, and I'm happy I did this!!

Thank you!

Re: Utilization vs DTI/closed accounts?

RonM21 — Thu, 08 Nov 2018 23:58:21 GMT

OP, keep us updated on your progress! Most of us started somewhere lower than we wanted to be, but it is nice to see people turn it around to success.

Re: Utilization vs DTI/closed accounts?

NRB525 — Fri, 09 Nov 2018 05:37:12 GMT

@Anonymous wrote:
Two key points:

(1) FICO treats every closed card as having a credit limit of $0, even if the credit report says the limit is (say) $5000.

(2) When a card has a balance that is greater than its credit limit, FICO treats that card as having an individual utilization of > 100%. (Individual Util means the card considered by itself.)

Taken together, these two things mean that a closed card with a positive balance is considered maxxed out. That is bad for your score, since individual utilization is one of the things FICO looks at.

But FICO also looks at total utilization (which is all cards combined together). Before your cards were closed, they had credit limits of $1000, $5000, whatever. And these limits contributed to your total credit limit. But now those cards all have limits of $0.

Their balances still count, however. So your total utilization has gone up, which is also bad. In fact, it's possible that your total utilization could be even greater than 100% now.

What is the source for this info, that closed accounts do not report any less than 100% utilization?

I was paying down a couple of closed cards with balances, still have a closed Citi card, with a balance of $550, I have been milking it for years paying $30 per month with 2% APR. The card itself shows a credit limit of $5,690 on the statement, and on the MyFICO score reports that I get.

I have FICO 8 scores of 816 - 820 right now, due to having 14 - 16 cards reporting some sort of balance, out of the 23 Open cards I have ( plus the reporting of one closed card, excluding AMEX Gold ). Also two new cards within the last 12 months, a HP for a CLI, HP for an auto loan and personal loan I am cosigner on within the last several months.

Utilization overall is something like 5%. I took a score drop in late September, when my SPG Luxury card reported 53% utilization. That 50% level I noted in 2015, when all my cards passed under 50% individually, score ramped up nicely. Said differently, the SPG card at the time, was my highest utilization card, thus led the way with a score decline when it went over 50%.

If I had a "maxed out Utilization" card, specifically on this closed Citi card, I don't think my score would be this high. The closed card would be leading the drag down, would not allow the SPG Luxury card to influence score so much in September.

Re: Utilization vs DTI/closed accounts?

Anonymous — Fri, 09 Nov 2018 08:28:34 GMT

NRB525, what are your other age of accounts factors?

I agree that your scores are right about where you'd expect them to be with an AoYA of 2 months and a ton of accounts with balances reported, plus a couple of inquiries. I would expect your scores to be a bit lower if you had a single maxed out account factored in. Good information and discussion here.

Re: Utilization vs DTI/closed accounts?

NRB525 — Fri, 09 Nov 2018 12:23:39 GMT

@Anonymous wrote:
NRB525, what are your other age of accounts factors?

I agree that your scores are right about where you'd expect them to be with an AoYA of 2 months and a ton of accounts with balances reported, plus a couple of inquiries. I would expect your scores to be a bit lower if you had a single maxed out account factored in. Good information and discussion here.

Ran my quarterly report here, before it expires....

FICO 8 EQ=819 TU=826 EX=816

Age of Oldest active accounts are in 2001. One from 1998 still shows up, closed in 2015, so Age of Oldest Account is 20 years.

Average Age of accounts is 6y 11 months.

Newest account is 3 months.

Credit utilization in the FICO 8 score is 4%

Inquiries are something like 4 or 5 total in the past year.

In the dynamic FICO Report screen, where MyFICO distinguishes between "Closed" accounts and "Open" accounts, you get a pull-down menu to show all Open or all Closed accounts. I don't get any results for "negative" accounts, unfortunately.

All my "Closed" accounts, as defined here, whether closed by customer or closed by issuer, are closed and have zero balances. The account in question, which is actually closed with a remaining balance, is not in the MyFICO list of "Closed" accounts from this pull-down listing.

In the list of "Open" accounts, this includes the actually closed Citi account, with a remaining balance being paid. It shows a 10% utilization rate, and has the notation in the details "Account closed at customer request".

Re: Utilization vs DTI/closed accounts?

Thomas_Thumb — Fri, 09 Nov 2018 13:32:27 GMT

My thought has been closed accounts count toward aggregate utilization. I tend to agree that a closed account has zero credit limit so influence on aggregate is the debt obligation.

What is unclear is whether or not closed revolving accounts are even looked at on an individual basis relative to card utilization. I tend to think they are ignored in that particular scoring attribute. The data from NRB525 tends to suggest this may be the case.

Re: Utilization vs DTI/closed accounts?

Anonymous — Fri, 09 Nov 2018 14:31:39 GMT

I would tend to agree with you above TT. Based on his age of accounts factors, I feel like if he were to take his AoYA to 12+ months and his 4-5 scoreable inquiries were eliminated that he'd stand a good chance of grabbing 850(s). I don't think that would be possible if a 100% utilization individual revolver was being "seen"by the algorithm. Just my opinion, of course.

Re: Utilization vs DTI/closed accounts?

Anonymous — Fri, 09 Nov 2018 15:26:09 GMT

Hi guys. The belief that closed accounts with a positive balance are treated as maxxed out was based on a handful of cases over the last few years -- specific situations where it was very difficult to explain why the person was experiencing a strong penalty except by that conjecture. I wish I could direct you to any of these but I never recorded the URLs. (Revelate was involved in at least one of those discussions.)

The fact that a person's credit reports might show the old higher credit limit unfortunately doesn't shed any light on what the scoring algorithm on the back end might be doing. This comes up all the time in the (different but analogous) case of AUs -- people say that their CMS (myFICO, Credit Check Total, CreditWorks Premium etc.) shows that their AU either is or is not part of their utilization in FICO 8. But that's just how the CMS is programmed to render it -- it doesn't allow a person to reliably infer what the scoring algorithm is doing.

NRB, it would be very helpful if you paid off this credit card and then let us know what happens to your score. It sounds like that would be pretty painless for you to do, if I understand you right. Actually the best test would be to get all cards at under 48.9%, pull your scores, then pay off the closed card with the positive balance, then pull your scores again. Is that doable?

PS. Just for the record, I don't have a dog in this race. The last time I had closed cards with a positive balance was 16 years ago, and that was way before I became interested in scores. I do remember my scores jumping a lot when those accounts fell off, but their associated derogs fell off too so that doesn't prove anything. I am happy with changing what I tell people if we have some clear test data that changes the landscape.

Re: Utilization vs DTI/closed accounts?

NRB525 — Fri, 09 Nov 2018 16:55:00 GMT

But... but... the interest rate is 1.99%. I can't pay it off

The scores posted today are with all cards under 50%, so there's that. The ding for SPG was in September, that cleared up with the late October statement, now under 50%. Points drop was EX -12 to 808, EQ -10 to 809, TU -9 to 815.

As an alternative, what I have done is initate a balance transfer to my SDFCU Secured Card of $450. The limit on that card is $500 so will put me over 90% on that card with the statement of October 20. The intent here is to see what my score is with a maxed out card.

My intent with commenting on closed card utilization, is that it is important for folks involved in AA, Balance Chasing, and closing of accounts, to get a clear view of what really will go on with their score. I have gone through a lot of closed accounts with balances. In my opinion, there are a lot of misunderstanding out there, repeated by folks without direct understanding, and that misunderstanding leads to panic by people that get hit with AA. They think they have to rush to pay everything off now or their score will "tank", when that often is not the most relevant consideration. Cash flow is important to consider. Terms of the current card agreement matters. Not just FICO score, which in the situation of AA, score becomes less relevant because many doors get closed for new applications anyway. #endrant.

I'll update after my SDFCU guinea pig is gored.

The best test, of course, would be to hit the secured card with 90%, report that, close the card, keep it at 85% or so, let it report again as closed the next month and see what happens. (I mean besides having Barclays close all their accounts... which I have none.)

Re: Utilization vs DTI/closed accounts?

Anonymous — Fri, 09 Nov 2018 19:29:19 GMT

@NRB525 wrote:

The scores posted today are with all cards under 50%, so there's that. The ding for SPG was in September, that cleared up with the late October statement, now under 50%. Points drop was EX -12 to 808, EQ -10 to 809, TU -9 to 815.

Are any of the cards > 48.9999%? Just want to make sure I know what under 50% means on your end.

Re: Utilization vs DTI/closed accounts?

NRB525 — Fri, 09 Nov 2018 19:35:29 GMT

Hilton $2,232 of $5,000 CL last statement in October, may go over 50% on Nov stmt.
SPG $2,979 of $15,000 CL October statement. It was over $5k on $10k limit in Sept.
Those are the only two near 50%.

Re: Utilization vs DTI/closed accounts?

Anonymous — Fri, 09 Nov 2018 19:51:30 GMT

OK. Since FICO rounds percentages up, it would be better if all cards were under 48.99% while you are attempting to test anything related to the closed card with the positive balance. A 49.01% util on a card is 50% (after FICO's rounding) which is not under 50%.

Re: Utilization vs DTI/closed accounts?

NRB525 — Thu, 22 Nov 2018 13:43:38 GMT

The Hilton card reported this week, specific card utilization went from 44% to 60%, now $3,013 of $5,000 limit reported.

EX goes 816 --> 810 6 point drop. So far that is the only one reported.

I have the BT to the SDFCU that completed, so that will report 90% soon.

I am not paying off the Closed card yet, only working with open balances going over 50% to see score changes. After I bring those below 50%, open cards, then I may consider paying off the Closed card.

Re: Utilization vs DTI/closed accounts?

NRB525 — Fri, 23 Nov 2018 14:55:22 GMT

SDFCU Secured card, with a $500 limit posted the statement balance of $454 today. Reports as 90% utilization on the MF Alert.

EX takes the score down by 21 points from 810 to 789.

If my Closed CITI card with $519 on a $5,690 displayed "credit limit" were already showing as 100% maxed out, I doubt I would have seen such a decline for a second maxed out card.

Re: Utilization vs DTI/closed accounts?

NRB525 — Thu, 29 Nov 2018 05:39:37 GMT

EQ dropped by 18 points

TU dropped by 14 points, both from the same SDFCU update to over 90%.

Re: Utilization vs DTI/closed accounts?

Revelate — Thu, 29 Nov 2018 16:54:37 GMT

NRB: If you don't have other major balances (call it >70% revolving) look in the reason codes for the other scores.

EX FICO 2 for example you may well have complaints about high credit usage, and high account balances.

Strangely that high credit usage is higher on the reason code list than my 7 month old 30D late (missed payment and recent missed payment being #2 and #3 for me). The HELOC is at 73.9% revolving currently, and clearly the source of the reason codes as the rest of my utilization is minimal compared to somewhere around 200k revolving.

Presumably if the closed account is 100% utilized, that will show up somewhere in the reason codes.

FWIW there was some old data that I remember that suggested that it was counted like that, but I'm somewhat suspect of a lot of data that's reported on this forum now if it's not backed by explicit reason codes at this point.

I may have better data on reason codes for you too once the HELOC reports again at 98.9% utilization in another week or so which it'll do before I start aggressively paying it down.

Re: Utilization vs DTI/closed accounts?

NRB525 — Sun, 09 Dec 2018 22:29:56 GMT

So, related to the changes over the last month, I have looked at all the Alerts and score changes I got on MyFICO. In this, when a score changes on TU, they list up the then-current 4 Reason Codes on that day.

Some perspective around this:

Last HP is August 2018 for a co-signed loan. I am not sure if this affects my New Accounts list, it is not a credit card.

Last HP for Credit Cards are Jan 15 2018 for a CLI on PenFed (EQ), and Jan 9 2018 for CSP (EQ & EX).

HP for Altitude Reserve was TU in September 2017, so off the scoring.

No HP for Delta Reserve app in January 2018

That means new accounts=two at about January 2018, CSP and Delta Reserve depending on where they time them, one in September 2017.

During this time there is no significant change in the closed Citi account, that still reports $519 of a $5,690 limit at November 18, 2018, 9.12% utilization, and payments every month, so no "inactive" notices on that one. The Closed account will be addressed later after these open accounts noted below come back in line with more reasonable utilization.

Overall CC utilization reported on all bureaus, from my November MyFICO 3B report, is 4%.

In early November, all three bureaus are 816 - 821.

TU Reason Codes at this time are:

1 - Time Since most recent account opening is too short

2 - Too many accounts with balances

3 - Amount owed on revolving accounts is too high

4 - Proportion of balances to Credit Limits on bank/national revolving or other revolving accounts are too high

Starting November 20 Hilton card goes over 50%. EX -6 point decline. TU does a -1 decline. EQ did not get an alert for it, but reflects it when a Discover report comes in November 23, net of -8.

TU Reason code sequence remains exactly the same.

On Nov 23, SDFCU begins to report 90% utilization. -21 point decline on EX. TU picks up SDFCU and declines -14. EQ picks up SDFCU and declines -18.

TU Reason Code sequence changes to this:

1 - Proportion of balances to Credit Limits on bank/national revolving or other revolving accounts are too high

2 - Time Since most recent account opening is too short

3 - Too many accounts with balances

4 - Amount owed on revolving accounts is too high

On November 27, SPG Lux begins to report, balance change from $2,979 to $1,349 on $15k limit, 19% change to 8.99% displayed as 8% on the Alert. EX increases 5 points, TU increases 4 points, and EQ gets the news about SPG Lux on the same day as the news about SDFCU, so the -18 noted above is net SDFCU going to 90% and SPG Lux decrease in utilization.

TU Reason code list is the same as after SDFCU reported, with "Proportion of Balances" as number 1. There have been no further TU changes, so that is the last list of Reason Codes I have.

December 1 passes, and something aged off, either a HP or new account effect, I'm not sure which.

December 2, Chase Freedom reports an increase in utilization from 5% to 33% and EX score increases +3 points. This is most likely a mix of something aging and the increase in single card utilization.

In here, I see that taking an open card to 90% triggers "Proportion of Balances" to go to number 1.

If a closed card were counted as 100% utilization, it would seem that reason code would already be my number 1.

This also shows how cards making significant moves below 30%, the SPG going from 19% to 8%, triggers a score change.

Also in here, are cards that are "not the highest utilization" triggering score changes.

These are examples that make me skeptical of the statement "Individual Card Utilization changes, when it is not your highest utilization card, are non-events".

I also do not think the closed account is significantly impacting my score, certainly doesn't look like 100% Utilization to me, but that will be reviewed later.

More to come as this develops.

Re: Utilization vs DTI/closed accounts?

NRB525 — Sat, 22 Dec 2018 23:22:47 GMT

While I wait for my SDFCU to report a significant reduction in utilization in the next few days, the Hilton card has gone below 50%. Got a score boost as bureaus see that, and that is without the SDFCU coming down below 90%. So the idea that highest individual card boxes out any score changes as lower Utilization cards change, is bunk.

And just to refresh our memory, the purpose of this exercise is leading up to checking what happens when the Closed card is paid to zero. That has not happened yet, and Open cards with interesting Utilization levels are moving score.

There is some indication on MyFICO TU that SDFCU may have reported, since the Reasons codes have now dropped any mention of Proportion of Balances Too High and Amounts Owed. Only Number of Cards is related to card count/balances. The rest of the reason codes deal with time since newest card. Again, no influence from the closed card "reporting at 100%" because that is not how Closed cards report.

So anyway, CK / Vantage 3.0 is also only interested in the SDFCU Open card being over 90%. No interest at all in the Closed card at relatively low utilization.