Closing Credit Cards

[Anonymous]

I would appreciate some one from FICO verifying that the way FICO handles closed credit cards is the same as reported by Lel in 2010 (see below - my bolding), plus help in answering a few related questions:

Tidbits (this section is courtesy of moderator, Lel)

- (1) If a closed CC account with a balance continues to report the original credit limit, then both the balance and the CL of the closed account will be used in the utilization calculations.

- (2) If a closed CC account is reporting a zero CL, even if there is a balance on the CC, the card will not be included in the calculations.

- (3) If a closed CC account is reporting a non-zero CL but has a zero balance, the card will not be included in the calculations.

- (4) If a closed account reports a CL that is equal to the balance (balance chasing), then this will be included in the calculations.  This is the worst-case scenario with regard to utilization.

Assume you have several credit cards subject currently to "balance chasing", with a combined balance owed of $50,000 and combined utilization of 90%.  You also have a couple more with a combined balance of $50K and utilization of 30%.  For al six cards your current balance is therefore $100K, with a combined (you should be ashamed!) utilization of (90 + 30)/2 = 60%.

You alertly observe that the CL's of the high balance cards are regularly reviewed by the CC companies and then reduced ("balance chased") to slightly above the balance, bringing utilization percents back up to 90% or more for those cards.  (This seems to be very unfair, since you are patiently paying off your CC debts, but no one has accused the CC companies of being unduly fair.)  After a few years, you astutely conclude that the CC companies intend to eventually cut you off altogether and cancel those four cards once their balances are paid off.  That is their "thank you" for being a faithful customer, giving up your Havana cigars, mothballing your yacht,  and and dumpster-diving for ten years so you can make good on your debts.

Now assume you determine that the CC companys' policies are to reduce the CL to zero if an account is closed - see (2) above:

Based on the above assumptions, plus (2) above, it seems obvious that an easy way to improve your FICO score is to simply cancel any balanced-chased cards.  The CC companies will cancel them anyway some day.  But, significantly, all those high utilizations will simply disappear, and you now have only two active CC's with a snobbish and perfect 30% utilization, instead of that despicable 60%.

But perhaps it isn't as easy as that.

Some questions:

A.   From the FICO folks, what happens to the $50K balance remaining on the closed cards?  Is it simply ignored by FICO?

B.   From FICO and anyone who has closed a card with a balance, how SPECIFICALLY have the major CC companies (Chase, Citibank, BofA, Well-Fargo, AMEX, Capital One) currently handled the CL of a closed account?  Has any CC company changed the CL of a closed account after initially reporting it as zero?  Have any CC Companies "balance chased" a closed card?  Is it even legal for a CC company to report a zero CL as being higher than zero?

Thanks!

[Lel]

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@Anonymous wrote:

I would appreciate some one from FICO verifying that the way FICO handles closed credit cards is the same as reported by Lel in 2010 (see below - my bolding), plus help in answering a few related questions:

Tidbits (this section is courtesy of moderator, Lel)

- (1) If a closed CC account with a balance continues to report the original credit limit, then both the balance and the CL of the closed account will be used in the utilization calculations.

- (2) If a closed CC account is reporting a zero CL, even if there is a balance on the CC, the card will not be included in the calculations.

- (3) If a closed CC account is reporting a non-zero CL but has a zero balance, the card will not be included in the calculations.

- (4) If a closed account reports a CL that is equal to the balance (balance chasing), then this will be included in the calculations.  This is the worst-case scenario with regard to utilization.

Assume you have several credit cards subject currently to "balance chasing", with a combined balance owed of $50,000 and combined utilization of 90%.  You also have a couple more with a combined balance of $50K and utilization of 30%.  For al six cards your current balance is therefore $100K, with a combined (you should be ashamed!) utilization of (90 + 30)/2 = 60%.

You alertly observe that the CL's of the high balance cards are regularly reviewed by the CC companies and then reduced ("balance chased") to slightly above the balance, bringing utilization percents back up to 90% or more for those cards.  (This seems to be very unfair, since you are patiently paying off your CC debts, but no one has accused the CC companies of being unduly fair.)  After a few years, you astutely conclude that the CC companies intend to eventually cut you off altogether and cancel those four cards once their balances are paid off.  That is their "thank you" for being a faithful customer, giving up your Havana cigars, mothballing your yacht,  and and dumpster-diving for ten years so you can make good on your debts.

Now assume you determine that the CC companys' policies are to reduce the CL to zero if an account is closed - see (2) above:

Based on the above assumptions, plus (2) above, it seems obvious that an easy way to improve your FICO score is to simply cancel any balanced-chased cards.  The CC companies will cancel them anyway some day.  But, significantly, all those high utilizations will simply disappear, and you now have only two active CC's with a snobbish and perfect 30% utilization, instead of that despicable 60%.

But perhaps it isn't as easy as that.

Some questions:

A.   From the FICO folks, what happens to the $50K balance remaining on the closed cards?  Is it simply ignored by FICO?

B.   From FICO and anyone who has closed a card with a balance, how SPECIFICALLY have the major CC companies (Chase, Citibank, BofA, Well-Fargo, AMEX, Capital One) currently handled the CL of a closed account?  Has any CC company changed the CL of a closed account after initially reporting it as zero?  Have any CC Companies "balance chased" a closed card?  Is it even legal for a CC company to report a zero CL as being higher than zero?

Thanks!

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Hi mikeaq, and welcome to the FICO Forums.

Closing a credit card does not mean that it will start to report a zero credit limit.  In fact, it's not uncommon for a closed credit card to continue to report its original credit limit until it falls off one's credit report.  I just reviewed my most recent EQ report, and there are 3 closed cards for which original credit limits still appear on the report.  So, closing cards with balance will not automatically exclude it from scoring.  For the cards being balance-chased, the issuer may continue to balance chase them down until they are completely paid off.

These accounts, incidentally, are an Old Navy card, a Sears Mastercard, and a B of A Visa card.

[Anonymous]

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@Lel wrote:

Hi mikeaq, and welcome to the FICO Forums.

Closing a credit card does not mean that it will start to report a zero credit limit.  In fact, it's not uncommon for a closed credit card to continue to report its original credit limit until it falls off one's credit report.  I just reviewed my most recent EQ report, and there are 3 closed cards for which original credit limits still appear on the report.  So, closing cards with balance will not automatically exclude it from scoring.  For the cards being balance-chased, the issuer may continue to balance chase them down until they are completely paid off.

These accounts, incidentally, are an Old Navy card, a Sears Mastercard, and a B of A Visa card.

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+ 1

And to add to that, you'll always want to read the cardholder agreement prior to cancelling a card that has a balance. The lender might demand payment, in full, immediately.

[Anonymous]

I have an urgent question. My FICO scores are high, in the low 800's. I currently have 4 credit cards in total. Two of them I use, but my balances are normally paid in full each month. Two of them have been sitting with a zero balance for about 4 years now and I would really like to close both of those accounts and apply for a new card elsewhere. My concern is what will happen to my FICO scores and my credit reports once I close these two accounts? By closing these two accounts will that negatively affect my scores and reports? I hate keeping these unused accounts open and I am also paying an annual fee on them as well. I have just been afraid to close them. Any guidance you can give me on this please?

Thank you.

[smc733]

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@Anonymous wrote:

I have an urgent question. My FICO scores are high, in the low 800's. I currently have 4 credit cards in total. Two of them I use, but my balances are normally paid in full each month. Two of them have been sitting with a zero balance for about 4 years now and I would really like to close both of those accounts and apply for a new card elsewhere. My concern is what will happen to my FICO scores and my credit reports once I close these two accounts? By closing these two accounts will that negatively affect my scores and reports? I hate keeping these unused accounts open and I am also paying an annual fee on them as well. I have just been afraid to close them. Any guidance you can give me on this please?

Thank you.

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Keep in mind, what you are doing now (same as I do), is the best for FICO scoring.  You want to show usage of 1/2 or less of your total revolving lines.  IE, if you have 4 lines, you want to show use of 2 or less.  So if you cancelled two and opened one, but used two monthly,  you'd be at 2/3, not as good.  Chop the one you like the least after you get approved for a new card, then move one of the two you use now into the "0 usage" column.

[MarineVietVet]

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@Anonymous wrote:

I have an urgent question. My FICO scores are high, in the low 800's. I currently have 4 credit cards in total. Two of them I use, but my balances are normally paid in full each month. Two of them have been sitting with a zero balance for about 4 years now and I would really like to close both of those accounts and apply for a new card elsewhere. My concern is what will happen to my FICO scores and my credit reports once I close these two accounts? By closing these two accounts will that negatively affect my scores and reports? I hate keeping these unused accounts open and I am also paying an annual fee on them as well. I have just been afraid to close them. Any guidance you can give me on this please?

Thank you.

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Hello and welcome.

The words I highlighted are key. Since these accounts have a zero balance simply closing them will not affect your score at all per Closing Credit Cards. However you will lose the credit limits on these so that could raise your utilization on other existing cards unless you are careful with their reported balances.

But overall there is really nothing major to worry about by closing these. Since they have an AF and you don't use them I think you are wise to do so. To me saving money on AF's far outweighs any posssible minor ding to a score. But that's just my opinion.

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Anonymous]

I have closed B of A, Chase, Citi and Discover cards with balances.  To head off rate jacks pre-CARD and to prevent balance chasing short term to get a little breathing so I wasn't getting CLD's as fast as I paid down.  All cards had perfect history and the only issue I had was utilization and crazy high debt.

In all the cases above the account continued to show the credit limit at the time of closure and as I paid them down they positively affected utilization.  In most cases I paid down to a few hundred dollars and let it ride on minimums from there to avoid a ZERO balance on a closed account.  This strategy served me well. I did get utilization under control, then was able to open new cards to replace closed cards and finally paid them down to zero balance except I still owe $20k on a closed citi card and $8k on a Chase card.but those are like 4% for life rates so I am no longer worried about how fast i pay down.  Chase and Citi have given me new credit despite ongoing balances on closed accounts and Discover is hounding me, filling my mailboxs with dozens of preaproved offers so the banks don't seem to stress to much over closed with a balance.  So it doesn't seem to bother the banks to much if you have closed accounts with a balance.

If you problem is specifically balance chasing.  It may in limited instances make since to close the account to preserve the limit in the short term.

Reading the OP, I don't think it will work the way he thinks.

[Anonymous]

Thanks for sharing your experience.  The problem was with balance chasing on two Chase and two CITI cards.  It became obvious they were going to close the cards eventually anyway, so I concluded I might as well close the cards and lock in the CL and the terms -- which I did yesterday.  All interest rates are under 5% for life.

[Cory]

Hello,

I didn't want to start a new thread, so I will post here. I am about to close some credit card accounts. Closing credit card accounts only limits your available credit at the credit bureaus, and not the AAOA's? (aka: History) right? The only concerns I should have is if I have balances on the cards that I will keep open, that will lower my available credit thus lowering my credit score right? The cards will still report for ten years right? The dates for the cards I'm closing are two opened in 2007, and one opened in 2011.

I want to close three cards, and only use my JC Penney, Citi, AMEX, Penfed and Bank of America cards. I would close the JC Penney's card, but that card is my oldest account opened in 1999. I am afraid to close that card. What do you think?

Cory

[Cory]

BUMP!