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Closing a card with balance: Impact on Util?

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Super Contributor

Closing a card with balance: Impact on Util?

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.

Message 1 of 11
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Established Contributor

Re: Closing a card with balance: Impact on Util?

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?
Message 2 of 11
Super Contributor

Re: Closing a card with balance: Impact on Util?


@thummel wrote:
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.

Message 3 of 11
Valued Member

Re: Closing a card with balance: Impact on Util?

The balance is reported until it is paid off and the remaining balance is still calculated into your overall utilization until you pay the account off. I closed my credit one account with a balance and it still reported until I paid it off and each month I got an alert from Myfico about the balance being paid down unail I had paid it off and then I got a small point boost after it was paid off.

Joined MyFico 10/1/16: EQ: 638 TU: 688 EX: 632
1 Baddie Procollect $4588 falling off 11/17!!! CK: TU-668 EQ-680 NFCU CashRewards Visa $7500 | Chase DisneyVisa $2500 | NFCU CLOC $15K | Discover It $1200| Amazon Prime $2000| Chase Amazon $500 | Cap1 QS $1100 | Walmart $3500 | BOA Sec $500 | JCPenney $1800 | Amex BCE $500|Amex Hilton $1000| VS $550 | FingerHut $300| NFCU Flagship $15K| Costco Citi $5500 | Children's Place $500
Message 4 of 11
Valued Contributor

Re: Closing a card with balance: Impact on Util?

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. 


Message 5 of 11
Super Contributor

Re: Closing a card with balance: Impact on Util?

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. 

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
Message 6 of 11
Established Contributor

Re: Closing a card with balance: Impact on Util?

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.

Message 7 of 11
Valued Contributor

Re: Closing a card with balance: Impact on Util?

A friend had a closed card with a ~2k balance and no other cards. His UTI was 419%.
Message 8 of 11
Valued Contributor

Re: Closing a card with balance: Impact on Util?


@rmduhon wrote:
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. 


EQ688
TU700
EX707

Message 9 of 11
Valued Contributor

Re: Closing a card with balance: Impact on Util?

He's an AU on some of our accounts (with no card) while I'm helping him rebuild his credit which has offset hit UTI. He's going through a bad divorce right now so he's only able to hit the minimum payment with maybe another $10 so the balance on that card isn't getting much smaller very fast.
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