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Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hurt?

Moderator

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu


@SouthJamaica wrote:

@Saeren wrote:

It will only hurt if Synchrony reports the closed card with a $0 limit. If they continue to report the original limit, your utilization will stay the same until you pay it off. 


Actually the utilization would not stay the same, because the card's limit has been removed from available credit limits.


For scoring purposes, the card is treated exactly the same as if it were open if the limit does not show $0.  If the limit is reported the same as the new balance (balance chasing) each month the card will be treated the same as a card with 100% utilization.  If the limit is reported as $0, the balance will be used in aggregate utilization metrics and the card would have the same 100% individual utilization  penalty.  


In most cases, the original limit is still reported and Synchrony is one of those lenders.  When this happens the card's balance and limit are treated exactly the same as if the card were still open until the balance reaches $0.

Message 11 of 36
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Moderator

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu


@SouthJamaica wrote:

@Remedios wrote:

@njcobra10tha  it wont hurt

 

It's a myth that refuses to die. 

Most accounts that were closed (without being charged off) will report limit and balance. 

In fact, some people will close cards when lender announces future changes (such as APR increase) to preserve terms. 

 


Even when the lender does report the correct limit, it still hurts, because the balance is still there in the numerator, but the credit limit has now disappeared from the denominator, in computing aggregate utilization percentage.

 

 


No.  That is how it works if the credit limit is $0.  When a limit is reported, a closed card with a balance is treated the same as an open card for aggregate utilization calculations.

Message 12 of 36
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Moderator

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu


@SouthJamaica wrote:

@Remedios wrote:

@njcobra10tha  it wont hurt

 

It's a myth that refuses to die. 

Most accounts that were closed (without being charged off) will report limit and balance. 

In fact, some people will close cards when lender announces future changes (such as APR increase) to preserve terms. 

 


Even when the lender does report the correct limit, it still hurts, because the balance is still there in the numerator, but the credit limit has now disappeared from the denominator, in computing aggregate utilization percentage.

 

 


Nope.

Limit will report as zero only if account has been charged off, in which case, the limit is  truly $0.00.

 

In any case, if that were true, OPs utilization would have instantly changed when accounts reported as closed. 

That didnt happen, so it's safe to say that limit on the closed account is being taken into consideration. 

 

 

You might be sleep deprived if you try opening car door with Samsung Pay
Message 13 of 36
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Super Contributor

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu

Very interesting and something that I've been interested in learning about. @NRB525 did some threads on it I believe, as well. I think I'll add this thread to the Primer on the subject. 

Also really trying to figure out how this CO utilization works, cuz its not just maxed out as old wisdom says. Any insight hit me up. 

-Our Community’s updated scoring wisdom: Link to Scoring Primer.
-For Negative Reason Codes see: CassieCard’s Score Factors thread.
-ccquest’s workbook to calculate metrics for you: Link to Workbook.

Oct 2020 New Account Scorecard.Nov 2020, No New Account Scorecard (reassignment conflated with aging. EX9 not updated yet. Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.


RIP:
(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 14 of 36
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Super Contributor

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu


@K-in-Boston wrote:

@SouthJamaica wrote:

@Saeren wrote:

It will only hurt if Synchrony reports the closed card with a $0 limit. If they continue to report the original limit, your utilization will stay the same until you pay it off. 


Actually the utilization would not stay the same, because the card's limit has been removed from available credit limits.


For scoring purposes, the card is treated exactly the same as if it were open if the limit does not show $0.  If the limit is reported the same as the new balance (balance chasing) each month the card will be treated the same as a card with 100% utilization.  If the limit is reported as $0, the balance will be used in aggregate utilization metrics and the card would have the same 100% individual utilization  penalty.  


In most cases, the original limit is still reported and Synchrony is one of those lenders.  When this happens the card's balance and limit are treated exactly the same as if the card were still open until the balance reaches $0.


Bank of America closed 2 cards of mine with sizable limits, each of which had a significant balance. I have not rushed to pay off either balance because each has some substantial time left with a 0% promotional rate, so I have had a long long time to watch and learn how they are treated (7 months so far and counting). Although the limits are reported correctly in the data, they both disappeared immediately from the total of credit limits.  Meanwhile each balance has remained in the total of balances owed.

 

So I am talking from personal experience.

 

The limits were removed from the denominator, but the balances stayed in the numerator, the effect of which is to increase revolving utlization percentage.


Total revolving limits 653000 (575000 reporting)

Message 15 of 36
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Super Contributor

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu

SJ, Are you talking about what the front end is telling you?
-Our Community’s updated scoring wisdom: Link to Scoring Primer.
-For Negative Reason Codes see: CassieCard’s Score Factors thread.
-ccquest’s workbook to calculate metrics for you: Link to Workbook.

Oct 2020 New Account Scorecard.Nov 2020, No New Account Scorecard (reassignment conflated with aging. EX9 not updated yet. Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.


RIP:
(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 16 of 36
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Super Contributor

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu

You’re not determining your utilization from a front end are you?
-Our Community’s updated scoring wisdom: Link to Scoring Primer.
-For Negative Reason Codes see: CassieCard’s Score Factors thread.
-ccquest’s workbook to calculate metrics for you: Link to Workbook.

Oct 2020 New Account Scorecard.Nov 2020, No New Account Scorecard (reassignment conflated with aging. EX9 not updated yet. Oldest/avg varies. Estimates above.)
Real world mortgage maxes are: EQ5-818, TU4-839, EX2-844.


RIP:
(Everything said is JMHO and is not endorsed by FICO or MF. I have no affiliation with either, just a grateful member.)
Message 17 of 36
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Super Contributor

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu


@Birdman7 wrote:
SJ, Are you talking about what the front end is telling you?

Examples:

In MyFICO:

18 percent revolving utilization myfico.jpg

In experian.com:

19 percent revolving utilization experian.jpg

These numbers include my Bank of America balances but exclude my Bank of America limits.

 

If you have reason to think that the algorithm is working with different numbers than those, I'd sure like to see your evidence.

 

 

 


Total revolving limits 653000 (575000 reporting)

Message 18 of 36
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Moderator

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu

That's fluffy puff CMS puts there for the masses. Last place you should use to determine your utilization. 

You might be sleep deprived if you try opening car door with Samsung Pay
Message 19 of 36
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Super Contributor

Re: Does it hurt to have a balance on a closed card? Does owing $1,000 on a $0 limit closed card hu


@Remedios wrote:

That's fluffy puff CMS puts there for the masses. Last place you should use to determine your utilization. 


Evidence, please.


Total revolving limits 653000 (575000 reporting)

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