Credit Card Utilization & Charged Off Account

[Anonymous]

I have two First Premier credit cards that have been reporting as charged off. During the past 2 months, I have been going back and forth with First Premier Bank attempting to get these accounts removed with no luck.  Originally, the accounts were being factored into my credit card utilization percentage causing me to be around 160% utilized because both cards were charged off over the limit.

Due to my recent contact with First Premier Bank, I received a notification from Experian that First Premier "flagged my account as charge-off".  My credit score wasn't affected by the flag.  However, this week (about a month later) I logged into my CK and Experian accounts and realized that my scores decreased (with the exception of Experian). The only report change was a small decrease in my car loan balance, but the First Premier Credit Cards were no longer showing in my credit card utilization for any of the credit bureaus.

How is this possible? I'm almost wondering if this is even accurate.  I know for sure that First Premier owns the account and it is not with a collection agency.  I've read a lot of threads in regards to credit card utilization on this site and many have said that if the original creditor owns the account, the charge off should be factored into my credit card utilization. Has something changed in regards to this rule?

At this point, I'm thinking about dropping my communication with First Premier and keeping my fingers crossed that my utilization is no longer affected in the future and just wait for the cards to manually fall off.

Any feedback/suggestions is appreciated.  Thanks!

[RobertEG]

If the credtior has deleted reporting of a credit limit, that can also result in removal of the account from inclusion in your % util calculation.

[Anonymous]

Thanks...I just checked and all accounts are still reporting the credit limits.

[Revelate]

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@RobertEG wrote:

If the credtior has deleted reporting of a credit limit, that can also result in removal of the account from inclusion in your % util calculation.

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It does?  Wouldn't it fall back to the old traditional default of current balance / high balance?

@OP: You can't really tell by the presentation interface as to whether something is counting against you or not as that's just what the developers wrote and they don't know the algorithm; the score shifts are what matter.  Would suggest focusing mostly on the EX score since that is likely a FICO 8 (these days, though I would check on that if I were you) whereas the CK scores aren't used by a lot of folks.  Excellent product for tracking changes to credit report, not so much for scores or advice.

How much are we talking about and is FP updating the tradelines with the CO status monthly or were they updated as CO and then they ceased reporting?  Second case yeah it'll fall off eventually, first case I'm not so sure that it will and traditionally you're better off just paying it if we're talking FICO score improvement.

[RobertEG]

I recall a lenghty thread a couple of years back that discussed the removal from util scoring if the credit limit were to be deleted.

I will do a bit of research and get back with reference to the posts.....

[RobertEG]

Posted by fused, Moderator Emeritus

09-23-2008 09:03 PM - edited ‎09-03-2010 01:58 PM

CLOSING CREDIT CARDS

THE FACTS 

Closing a CC (credit cards) does not lower your FICO scores in and of itself. When deciding to close a CC there is two important things to consider. In the short-term, closing a CC can have an adverse affect on your UTIL percentage calculations and this in itself can definitely lower your scores. In the long-term, a closed CC in good standing (nothing derogatory reporting) with a $0 balance will generally be deleted from your CRs (credit reports) after 10 years. Once this account is deleted, you lose the history and age and this might lower your scores. 

SHORT-TERM

The most important factor to consider when closing CCs is the affect on your cumulative UTIL percentage calculation; this is the total sum of all of your CC’s CLs (credit card limits) divided by the sum of their balances.

Utilization Percentages 

To fully understand what Utilization percentages are, you must understand FICO scoring has two types of util percentage calculations, one that looks at the extent of utilization on individual revolving accounts (i.e. CCs, overdraft protection and sometimes Heloc’s) and the other is cumulative and looks at the extent of utilization on all of your revolving accounts.

Example 

Card 1: CL 5K, balance 1,000 = 20 percent util

Card 2: CL 3K, balance 800 = 27 percent util

Card 3: CL 2K, balance 1,000 = 50 percent util

The total CL (credit limit) is 10,000 and the total balance is 2,800, so the cumulative UTIL is 28%. Not bad but not ideal.

Let's see what happens if you close one of them.

Close Card 1# and pay off the balance:

Total available credit decreases from 10K to 5K

Cumulative Utilization: 5K CL, balance 1.8K = 36 percent

YIKES…Getting worse!

Closed and opened CC TLs are weighed and scored equally by FICO. You will not be punished by simply closing a CC as long as it is in good standing, has a $0 balance and your cumulative Util remains at 1-9 percent. Increasing the CLs (credit limits) on the cards you plan to keep open before you close the card(s) you don't want might be helpful as this too helps to keep your Util percentage low. 

Also open and closed accounts age the same. Closing a CC has no affect on average age of accounts or credit history length.

Tidbits (this section is courtesy of moderator, Lel)

- 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.

- 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.

- 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.

- 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.

LONG-TERM

In the long-term, closing a CC in good standing with a $0 balance will generally be deleted from your CR after 10 years. Once this account is deleted, if your length of credit history and/or average age of accounts decreases in the number of years, your scores might drop.

FINAL NOTES 

In the short-term, there should be no adverse affect to your FICO scores, average age of accounts, or the length of your credit history, provided there is no increase in your util% calculations after you close any CC(s). In the long-term, a CC in good standing (nothing derogatory reporting) with a $0 balance will generally be deleted from your CRs (credit reports) after 10 years. Once this account is deleted, you lose the history and age of this TL and this might lower your scores. 

[Revelate]

Ah hrm, we've had numerous anecdotal reports over the years that a closed account did factor into your revolving utilization if there was still a balance on it.

I don't have any data offhand on that as I've never run into it personally (knock on wood), but that's apparently held true for both CO's and also for cards that were simply whacked via AA while there was still a balance on it but not otherwise delinquent.  

I don't know how to test it concretely, zeroing out every open credit card and seeing if one got whacked by the no revolvers reporting a balance might provide some insight, but maybe not since I presume that just looks at open accounts or certainly that's plausible so can't confirm it as not counting even if the all-zeros drop is seen.  Not really sure how that penalty is fully implemented anyway TBH, I assume it's just under number of revolvers reporting a balance.

[RonM21]

Very interesting repost Robert. This is one of those things I've been wondering about because it seems like there have been mixed answers. I wish there was a way to verify what is what.

[Anonymous]

Hi Ileshia. I am having this same exact problem with First Premier Bank. I had 2 CO cards with a total of $1100 CL and 1 new secured card with $500 CL. According to fico my utilization is 96% which is horrible. I have recently paid the CO and I'm hoping to GW for removal, but it seems FP is hard to deal with.

Did you get this resolved?

[Anonymous]

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@Anonymous wrote:
Hi Ileshia. I am having this same exact problem with First Premier Bank. I had 2 CO cards with a total of $1100 CL and 1 new secured card with $500 CL. According to fico my utilization is 96% which is horrible. I have recently paid the CO and I'm hoping to GW for removal, but it seems FP is hard to deal with.

Did you get this resolved?

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I'm sorry you're having the same problem with FP.  I gave up on it and will just wait for it to age and fall off. I'm grateful that it no longer is figured into my utilization. Not really worried about it anymore. The COs haven't stopped me from getting approvals, so I'm good to go until then.