I closed a card today which had a small balance left on it. I was surprised that it let me close the card with a balance; I always thought you had to pay it off first but evidently not.
Anyway, that got me to thinking. If you can close a card with a balance, say someone has a card or cards that are completely maxed out. If they call and close that card or cards, how does it impact utilization? I'm sort of figuring that the balance will still be reported monthly by the creditor until it is gone, but that balance is now going against a lower overall credit limit which would actually increase aggregate utilization? OR, once you close an account does that amount not impact your utilization at all any longer? I'd imagine the first is true, otherwise I could see far more people closing maxed out accounts if it would actually help their utilization situation.
Pretty sure since it will show 0 avaliable credit with a balance wouldn't it be technically reported as maxed out? Or would it not be included in utilization?
That's sort of what I'm getting at here.
Naturally, with an account closed, one's total credit limits will drop by whatever the credit limit on that account was.
My question is what happens to the balance on that closed account? I would assume that the creditor would continue reporting that balance monthly until it is gone, but I could be wrong about this. I've never closed an account with a balance so I don't know what happens in this situation. If the balance still gets reported, whether or not the account is open or closed, I would figure that balance gets included into total balances and would still get divided by total credit limits (which are now smaller with the account closed) to get aggregate utilization, which by default would then be higher... Same balances, lower overall limits = greater overall utilization.
I do not know for a fact though that a balance would continue to be reported on a closed account, or if a balance on a closed account still gets factored into utilization. My gut says yes, but I'd like clarification from someone that knows for sure.
I only close accounts with zero balances, because I don't want the utilization to skyrocket when they report the available credit as $0.
In my opinion, it's best to let it generate a statement as $0, and report that $0 balance to the bureaus before closing it.
I've had several cards closed with balances over the years. Two were still paying down balances when I joined here and one continues.
In the 3B alerts here, EX never acknowledges the change in balances.
EQ always shows the balance changing when it reports.
TU does not include the Closed balances in the All Bankcards alert item.
Each bureau still shows the accounts, as closed, though the impact on utilization is handled separately from open accounts. On regular FICO score reporters, typically the Closed items are excluded. Sometimes they get included.
I doubt there here is a complete isolation of the remaining balance from your score. It is factored in somehow.
The more important consideration is, what are the APR terms on the closed balance, because those are frozen in place on closing. So a high balance with a 20% APR isn't going to be something you want to let ride for very long, closed or open. The accounts I had as closed with balances have low Forever APR offers, or to freeze reasonable APR when the bank wanted to change terms to substantially increase APR on an open balance.
It's been a number of years, maybe 15, since I closed a Capitol One card when they raised my rate and I was carrying a balance. I didn't accept their new terms which meant I paid my balance off at my old rate. The bill came monthly and it reflected my same credit line even tho I could not use the card for new purchases.
A friend had a closed card with a ~2k balance and no other cards. His UTI was 419%.
This is what happened to me. I had a 123% UTI on that card, really had no other cards to offset over all UTI so my score stunk until I paid it.