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Charged off closed credit card affecting revolving utilization percentage, is this an error?

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New Member

Charged off closed credit card affecting revolving utilization percentage, is this an error?

I am trying to purchase my first home and am hoping to do it as soon as possible. I have been trying to repair my credit over the past three months.  I hit a rough patch about 7 years ago.  My current financial situation is excellent and should remain this way moving forward.  I HAD one Bank of America personal credit card which was opened in 2008 with a credit limit of $4500 and an unpaid balance of $4637 which was charged off in 5/2014 and closed.  The balance has remained constant at $4637 going back as far as the credit reports record.  It is being reported as “CO” every month and I have been penalized for a late payment each month to this day.  The credit limit is being underreported at $2500.  I checked my Experian report today which states that it will be “On record until Sep 2020” which is seven years following the DOFD.  

Apart from the Bank of America card, which has not been used since 2013, I have four other credit cards all with a zero balance which give me a total available credit of $6750 among the four. 

My revolving utilization percentage is being reported between 50-52% by all three credit bureaus using the myFICO service.  After using the credit simulator which allows me to “pay down $4637 of my total revolving/open account balances” it predicts that my Experian score should increase by 60 points and my Equifax score should increase by 50 points.  The Transunion score should increase by 25 points.  I’m assuming my FICO mortgage scores will also increase similarly and with such a boost I will qualify for the mortgage on a home I would like to purchase.  I believe the ~50% utilization is being calculated using the ($6750 + $2500) divided by $4637.

I would really appreciate some guidance on how to handle this situation with the primary goal of maximal credit score increase within the next several months.  I have tried to dispute this multiple times using the online dispute tools for each credit bureau without success.  I have the funds to pay the Bank of America account in full.  However, I will wait until Sept 2020 and do nothing about it if that is the surest way this will have the least impact on my credit going forward as I hear it is supposed to “fall off.” 

My questions are:

  • Should I wait until Sept 2020 when this account supposedly “falls off” my report?  It seems that the account is still affecting me is because all $4637 is being factored into my credit utilization and I am also being hit with a late payment each month?  When it “falls off” will this also negatively affect my AAOA?
  • Should I pay it in full?  If so, should I call Bank of America on the telephone?  Should I write a letter to them or propose a PFD so that they delete the monthly “missed” payment record?  Should I just pay it off and not ask for PFD so that it shows “PAID IN FULL” and remains open?  Exactly what does this letter need to include?
  • Should I settle the account?  Would settling the account effectively bring the balance to ZERO and fix the problem?  Would this also “close” the account and negatively affect my AAOA?
  • Should I file a written dispute for the credit bureaus to update the credit limit of the Bank of America card to $4500 rather than $2500?
  • Should I call the credit bureaus and ask them why this closed account balance is affecting my revolving/open utilization percentage?

Any/all suggestions are appreciated.  Thanks.

10 REPLIES 10
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Super Contributor

Re: Charged off closed credit card affecting revolving utilization percentage, is this an error?


@kale161 wrote:

I am trying to purchase my first home and am hoping to do it as soon as possible. I have been trying to repair my credit over the past three months.  I hit a rough patch about 7 years ago.  My current financial situation is excellent and should remain this way moving forward.  I HAD one Bank of America personal credit card which was opened in 2008 with a credit limit of $4500 and an unpaid balance of $4637 which was charged off in 5/2014 and closed.  The balance has remained constant at $4637 going back as far as the credit reports record.  It is being reported as “CO” every month and I have been penalized for a late payment each month to this day.  The credit limit is being underreported at $2500.  I checked my Experian report today which states that it will be “On record until Sep 2020” which is seven years following the DOFD.  

Apart from the Bank of America card, which has not been used since 2013, I have four other credit cards all with a zero balance which give me a total available credit of $6750 among the four. 

My revolving utilization percentage is being reported between 50-52% by all three credit bureaus using the myFICO service.  After using the credit simulator which allows me to “pay down $4637 of my total revolving/open account balances” it predicts that my Experian score should increase by 60 points and my Equifax score should increase by 50 points.  The Transunion score should increase by 25 points.  I’m assuming my FICO mortgage scores will also increase similarly and with such a boost I will qualify for the mortgage on a home I would like to purchase.  I believe the ~50% utilization is being calculated using the ($6750 + $2500) divided by $4637.

I would really appreciate some guidance on how to handle this situation with the primary goal of maximal credit score increase within the next several months.  I have tried to dispute this multiple times using the online dispute tools for each credit bureau without success.  I have the funds to pay the Bank of America account in full.  However, I will wait until Sept 2020 and do nothing about it if that is the surest way this will have the least impact on my credit going forward as I hear it is supposed to “fall off.” 

My questions are:

  • Should I wait until Sept 2020 when this account supposedly “falls off” my report?  It seems that the account is still affecting me is because all $4637 is being factored into my credit utilization and I am also being hit with a late payment each month?  When it “falls off” will this also negatively affect my AAOA?
  • Should I pay it in full?  If so, should I call Bank of America on the telephone?  Should I write a letter to them or propose a PFD so that they delete the monthly “missed” payment record?  Should I just pay it off and not ask for PFD so that it shows “PAID IN FULL” and remains open?  Exactly what does this letter need to include?
  • Should I settle the account?  Would settling the account effectively bring the balance to ZERO and fix the problem?  Would this also “close” the account and negatively affect my AAOA?
  • Should I file a written dispute for the credit bureaus to update the credit limit of the Bank of America card to $4500 rather than $2500?
  • Should I call the credit bureaus and ask them why this closed account balance is affecting my revolving/open utilization percentage?

Any/all suggestions are appreciated.  Thanks.


-Yes you should certainly wait until it falls off.

-Paying it in full would be lovely; getting a pay for delete would be even lovelier, but good luck on that.

-Since it's closed it's not going to show up as being open.

-You should not "settle" it unless they agree to delete it and not to report the settlement; otherwise the "settlement" can have negative consequences of its own, AFAIK.

-You could send a verification letter to the bureaus, that sometimes precipitates a negative falling off. I don't think disputing the limit will mean anything.

-No you shouldn't waste your breath calling the credit bureaus.

 

In the unsolicited advice department: you should not take the simulators seriously. 1. They are garbage. 2. They relate to FICO 8 only. To me, simulators are for no purpose other than goofing around.


Total revolving limits 653000 (575000 reporting)

Message 2 of 11
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New Member

Re: Charged off closed credit card affecting revolving utilization percentage, is this an error?

Thanks so much for your advice.

 

So just to clarify, which do you recommend? 1) waiting for it to fall off or 2) paying it in full?  Which do you believe will have the greatest positive impact on credit scores?

Message 3 of 11
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Senior Contributor

Re: Charged off closed credit card affecting revolving utilization percentage, is this an error?

To add my opinion you should wait for it to fall off, September isn't that far off. And paying it off might actually be a bad thing, they could update it with the payment and it will stay on your credit report even longer.

And I'm pretty sure a balance reporting as "CO", Charged Off, doesn't affect your utilization. A recently closed credit card with a balance will affect utilization as it has $0 credit available, so 100% utilization. But a Charged Off balance means they've written off on their books as a loss and they don't anticipate any payments.


Message 4 of 11
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Contributor

Re: Charged off closed credit card affecting revolving utilization percentage, is this an error?

@DaveInAZ Respectfully, I'm going to disagree with you; a CO with a balance absolutely affects your utilization. The fact that the OC is reporting a balance and updating every month is what drives your score down and utilization up. I just went through a similar situation and once I paid the CO off , my utilization went from 64% to 2%, so it absolutely does impact multiple points of your reports.

 

 

Message 5 of 11
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Community Leader
Mega Contributor

Re: Charged off closed credit card affecting revolving utilization percentage, is this an error?

In addition to above, paying it off won't extend how long it's reported. That's illegal. If it wasn't paid in full, a payment could restart the SoL, however.







Message 6 of 11
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Established Contributor

Re: Charged off closed credit card affecting revolving utilization percentage, is this an error?


@Brian_Earl_Spilner wrote:

If it wasn't paid in full, a payment could restart the SoL, however.


Which wouldn't matter if the less-than-full payment was an agreed balance settlement. If they agree to settle for less than the full balance, they can't later sue you for the remainder. Well, they could, but they wouldn't be very successful.

    Total Loan Balance: $61k / $104k

    Total SL: $41.2k
Goal cards:



United 1K - 675,000 lifetime flight miles    |    Chase 6/24
Message 7 of 11
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Established Contributor

Re: Charged off closed credit card affecting revolving utilization percentage, is this an error?

I just want to add two things. First you should be in the early exclusion window for TU because it’s less than 6 months before it falls off. I think EX early exclusion is 3 months. Not 100% sure on that. And from what I hear don’t try an EE with EQ. Make sure you ask for an EE and make it clear that you aren’t disputing the account. Secondly if all of your revolvers that are in good standing are reporting zero, that’s not good. Allow a small balance to report to one, like $10. FICO penalizes you for having all cards at zero. I lost 20 points when I did this by mistake. I got them back the next month after letting one card report 19$. Good luck.


Starting Fico Scores:November 2019

Current Fico Scores: September 2, 2020
Goal Scores: 700 across all three
Message 8 of 11
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Established Member

Re: Charged off closed credit card affecting revolving utilization percentage, is this an error?

It may seem pedantic, but I think it's an important distinction to point out that FICO isn't penalizing you for having all zero balances, they're REWARDING points for using the credit.

 

People tend to think of everyone "deserving" 850 points and then having them deducted for various things, but that's not how it works. You start with a low number of points and then earn points through various credit-related behaviors. One of those behaviors is demonstrating use of credit by showing a small balance on a card, which EARNS you points. 

 

To say that you're penalized for having a zero balance is like saying you deserve money for a job you didn't do. If you don't do what the FICO formula needs you to do to earn those points, you simply didn't earn the points. 

 

It's an entirely different subject whether or not you think it's a good formula, but the fact remains that there's no penalty for having zero balances, there is, rather a reward, for having a small balance on one card.

 

Message 9 of 11
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Established Contributor

Re: Charged off closed credit card affecting revolving utilization percentage, is this an error?


@Seventh_Summit wrote:

It may seem pedantic, but I think it's an important distinction to point out that FICO isn't penalizing you for having all zero balances, they're REWARDING points for using the credit.

 

People tend to think of everyone "deserving" 850 points and then having them deducted for various things, but that's not how it works. You start with a low number of points and then earn points through various credit-related behaviors. One of those behaviors is demonstrating use of credit by showing a small balance on a card, which EARNS you points. 

 

To say that you're penalized for having a zero balance is like saying you deserve money for a job you didn't do. If you don't do what the FICO formula needs you to do to earn those points, you simply didn't earn the points. 

 

It's an entirely different subject whether or not you think it's a good formula, but the fact remains that there's no penalty for having zero balances, there is, rather a reward, for having a small balance on one card.

 


That's right. You get rewarded for using credit (having at least one non-zero balance), but penalized if you're using too much credit (have too many non-zero balances). The ideal balance, as far as scoring is concerned, seems to be AZEO, but it's worth noting that your scores will still be very good even if all your accounts have a low non-zero balance. AZEO is mostly a trick used by people right before they apply for new credit, to squeak a couple extra points into their score, but it certainly isn't a magic wand that will add 30 points or anything, we're talking more like 2-5 points (versus having low balances on all accounts)

    Total Loan Balance: $61k / $104k

    Total SL: $41.2k
Goal cards:



United 1K - 675,000 lifetime flight miles    |    Chase 6/24
Message 10 of 11
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