Chase, Balance Chasing and Closing Accounts.

[ThomasJNewton]

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@ptatohed wrote:

If the Sapphire Preferred is down to a balance of $561 and the current limit is $5100, it appears that perhaps the chasing has stopped?

It just happened the one time, but he has been scared ever since.

But, honesty, if I were your friend and I had those kind of balances at those kind of interest rates, on some cards with annual fees, my first concern would not be my Chase limits or closures.  

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They are three of his oldest cards and he would not want to take the hit. Things are going well for him, and he could pay them all off with in a few weeks right now, but he does not want to risk losing them all.

[ThomasJNewton]

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@CorpCrMgr1 wrote:

I'd pay off the Saphire Preferred and see what happens. By paying off his accounts the credit score should rise making your friend more credit worthy.  Remember, 2020 was the beginning of Covid and a lot of CL were dropping.

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Well, after a month of lowering every balance on his account (and adding a few charges that were paid off each time), he paid off his Shappire Prefered yesterday. As of this morning, he has the full $5,100 in available credit. His current balances are:

Capital One: $0 out of $10,000.

Bank of America: $0 out of $6,000.

Discover: $9,799 out of $20,000.

Navy Federal $12,000 out of $15,000.

Chase:

Freedom: $2,163.76 out of $6,500.

Sapphire Preferred: $0 out of $5,100.

United Explorer: $11, 232.20 out of $15,000.

He should have his Discover paid off in the next month and his United Explorer down to under $6,000 as well.

If he keeps it up, he should be AZEO by June. :-)

[Anonymous]

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@ThomasJNewton wrote:

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@CorpCrMgr1 wrote:

I'd pay off the Saphire Preferred and see what happens. By paying off his accounts the credit score should rise making your friend more credit worthy.  Remember, 2020 was the beginning of Covid and a lot of CL were dropping.

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Well, after a month of lowering every balance on his account (and adding a few charges that were paid off each time), he paid off his Shappire Prefered yesterday. As of this morning, he has the full $5,100 in available credit. His current balances are:

Capital One: $0 out of $10,000.

Bank of America: $0 out of $6,000.

Discover: $9,799 out of $20,000.

Navy Federal $12,000 out of $15,000.

Chase:

Freedom: $2,163.76 out of $6,500.

Sapphire Preferred: $0 out of $5,100.

United Explorer: $11, 232.20 out of $15,000.

He should have his Discover paid off in the next month and his United Explorer down to under $6,000 as well.

If he keeps it up, he should be AZEO by June. :-)

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Good, hope it goes smoothly.

My concern was that the friend is perhaps focussing on the wrong thing, FICO-type stuff over finance, and I would have certainly reduced the interest charge as much as possible as soon as possible.  If they close cards, even the oldest cards, that sucks, but as soon as utllization falls, scores rise, it wouldn't be that hard to get new cards.   It's not as if there are derogs on the reports, just too much balance owed (which is/will be fixed) and Chase considering the limits too high.

[CreditPoor]

Your friend has clearly over extended himself by a good amount. In today's economy this is raising all kinds of red flags to the banks, especially with the rate that defaults are rising by. Your friend needs to really sit down and budget and cut anything that isn't a necessity to live out and dump all remaining funds into paying off this debt. 

I wouldn't be surprised if a couple of those accounts get CL decreases here in the next month or two if he continues 

[ThomasJNewton]

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@Anonymous wrote:

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Good, hope it goes smoothly.

Me too! So far so good. We will know more in a few weeks when he has finished paying off his Discover, and brings his balance on his Chase Mileage Plus Explorer Card to well under 39%.

My concern was that the friend is perhaps focussing on the wrong thing, FICO-type stuff over finance, and I would have certainly reduced the interest charge as much as possible as soon as possible.

That is what he did, for the most part. He paid off his B of A card (his highest interest), then his Capital One (next highest), then Discover (third in line). In the next month he will clear Discover. His concern was not really over FICO-score, but in keeping cards he wanted, rather than needing to start over.

If they close cards, even the oldest cards, that sucks, but as soon as utllization falls, scores rise, it wouldn't be that hard to get new cards. It's not as if there are derogs on the reports, just too much balance owed (which is/will be fixed) and Chase considering the limits too high.

That is completely true, but if he could do things in a way that prevents them from being closed that does not cost that much, it seems like a better approach. Given that since that time in 2021, his balances have dropped from about $90,000 to about $37,000 (most of which in the last year), he was been doing pretty well. At the rate he is going, he should have no debt by June (if not before). He has a cash reserve of about $25,000 (it was $30,000 but he had to hit if for an unexpected move), that is 4 months expenses. He has insisted on keeping that despite the extra interest, as he wants to make sure he is not in worse shape if something bad happens.

[markhs777]

If possible friend should get a long term personal loan with a reasonable rate if and pay down those high credit card balances. Some breathing room will come as well  as less balance chasing and higher scores.

[ThomasJNewton]

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@CreditPoor wrote:

Your friend has clearly over extended himself by a good amount.

During Covid, he helped some friends and family in desperate need and probably should have opened some new cards or done a personal loan. However, earns over $185,000 a year which puts his debt to income ratio at about 19% right now. Not sure I would call that “over extended by a good amount” :-) He has chosen to continue maxing out his 401K contribution as that cannot be fixed later. This has definitely resulted in his interest than would be ideal, but is probably better in the long run.

In today's economy this is raising all kinds of red flags to the banks, especially with the rate that defaults are rising by.

Given that even when his debt was around $90,000 he has never made a late payment, and his balances have been dropping pretty rapidly over the last year or so, I am not sure that you are correct.

Your friend needs to really sit down and budget and cut anything that isn't a necessity to live out and dump all remaining funds into paying off this debt. 

I think paying down over $15,000 a month is pretty reasonable. Does that seem slow to you?

I wouldn't be surprised if a couple of those accounts get CL decreases here in the next month or two if he continues 

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If he continues what? Paying off his debt at a rate that it will be $0 by June? How fast would you say he should be paying it down? He had a CLD by Chase of about $10,000 in 2021 - about 3 years ago, and nothing since. Now from a peak of about $90,000 in debt (close to 100% of his available credit), he is at about $36,000 or about 45%. By this time next month he will be down to about $20,000 (around 25% of available credit and a DTI ratio of around 11%).

He currently has two cards at over 70%, one at about 49%, one at 33% and the remaining 3 at 0.00%. By this time next month, he should be at one at over 70%, one at about 39%, one at 23% and 4 at 0.00%.

Which card (or issuer) would you expect to cut his credit and why? From my understanding, the reason issuers cut balances is that they are worried that once one has paid off a large amount of one's balances with them, they worry that one will max their card and then default. Given how much available credit he has already, it does not seem that should a serious worry for any of them.

I would love to hear your thoughts. 

[ThomasJNewton]

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@markhs777 wrote:

If possible friend should get a long term personal loan with a reasonable rate if and pay down those high credit card balances. Some breathing room will come as well  as less balance chasing and higher scores.

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Thanks. At this point, I am not sure it would be worth the hassle. His Navy Federal card has a low interest rate, and by this time next month he will only have about $6,000 on his Chase Mileage Plus Explorer card and $1,500 on his Freedom card.  He has not been balance chased in almost 3 years. His concern that started this thread was when he started paying off his Chase cards would they do it again. Given that he now has paid over $12,000 of his Chase balances, I do not think they are likely to do it again, but I guess we will see when he makes his $6,000 payment on his Mileage Plus Explorer card next month. :-)

Thanks for the suggestion. It should have been something he considered, but by the time I got involved it was less important. :-D

[xenon3030]

Keeping balance above 30% on any card and especially for several months is a red flag. So, it might be better to pay partially EACH card to drop each balance to 29% or smaller. You might do balance transfer to re-distribute the load between multiple cards. In case of balance chasing again, you might call them and see what they say.

Doing PIF on the impacted cards might be a good idea to avoid sinking Fico8 score, due to balance chasing. If one card eventually gets closed, it is not the end of the world and there is no penalty on Fico8. After recovering the credit profie, you may apply for such cards in future.

[ThomasJNewton]

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@xenon3030 wrote:

Keeping balance above 30% on any card and especially for several months is a red flag.

While I am sure that is true, given that he had all his cards maxed out for several years, that ship has sailed.

So, it might be better to pay partially EACH card to drop each balance to 29% or smaller.

There are two problems with that: 1) It would cost much more to pay the lower interest rate cards at the same speed as the highest interest rate cards, 2) he did not have the funds to have paid every card to get them to that point. Even now, with only 2 cards over 69% and one just under 50%, he would not have the liquid funds to do that.

You might do balance transfer to re-distribute the load between multiple cards.

There are not enough cards with enough available credit over which to split the three remaining cards with high balances to get every card to have a balance of under 29%. Even if there were, the cost to do so would be astronomical (at a minimum $1,000 plus the extremely high balance transfer interest from the moment the transfer happened). Finally, none of that would report until his next statement at which point he would already be paying off his Discover and getting his Chase Mileage Plus Explorer card to just about 35%. Seems like a lot of effort and expense for no real gain.

In case of balance chasing again, you might call them and see what they say.

Given that he has not been balanced chased for over three years, and that Chase was the only one to balance chase him at all, if they decided to do it at the point he had one card paid in full, one card around 19% and one at around 35%, I would expect it would be worse if getting there required balance transfers from their other two cards. :-)

Doing PIF on the impacted cards might be a good idea to avoid sinking Fico8 score, due to balance chasing. If one card eventually gets closed, it is not the end of the world and there is no penalty on Fico8. After recovering the credit profie, you may apply for such cards in future.

By the time they would likely be in a position to do that, he would be ready to pay off his last Chase card and probably bring his Navy Federal down to around 50%, with all his other cards at $0.00, so it would not have much impact.

Thanks for your feedback.