Credit Utilization Math

[Anonymous]

If you close a credit card account (not your oldest one of course), will you get dinged on your CR even if you carry a zero balance monthly and your overall CL across the board is actually higher because you just got approved for a new card? (ie. you currently have 25K CL total accross the board, then you closed a CC CL of 2K so it dropped to 23K, but with your new card of a 5K CL-assuming it was a soft inquiry not a hard one, you're now at 28K CL across the board).

[Anonymous]

No, as long as aggregate UTI does not exceed 8.9%, you will not get dinged for closing that account.

That said, you're leaving about 10-20 points by reporting $0 balance across all cards, the All Zero penalty. Report balance (different from carrying balance) on at least one card to reclaim those penalty points.

[Anonymous]

oldman thanks for the reply, so just to clarify it's basically a wash?  You might lose at the site of closing a card but regain that loss on the new card equals no immediate effect on your credit score? You lost me with the "Zero penalty. Report balance" again you're dealing with a green horn here. Did you mean no other debts ie. mortgage, car loan etc.. and I can only assume the acronym UTI stands for utilization ratio not the UTI I know heheh..

[Anonymous]

Yes different UTI lol, utilization, balance divided by credit limit. And no not a wash, adding a card or not does not matter, total credit limit does not matter, what matters is UTI. You can close 5 cards today without adding new cards, as long as the aggregate UTI (total reported balance/total credit limit) is between 1% and 8.9%, your score will not be affected. Keep in mind that FICO rounds up so even $10 balance on one card against total credit limit of 100k is counted as 1%.

All Zero Penalty - FICO penalizes you when you report $0 on every card account (meaning all your statements cut at $0 because you paid everything off before the statement date, instead of letting charges post to the statement). When you said in the original post "will you get dinged on your CR even if you carry a zero balance monthly", do you mean you pay everything to zero before statement or do you mean you let charges post to statement then pay if off by due date?

[Anonymous]

>When you said in the original post "will you get dinged on your CR even if you carry a zero balance monthly", do you mean you pay everything to zero before statement or do you mean you let charges post to statement then pay if off by due date?

I kind of hybrid 98 plus percent I pay off before statement to zero and then I slip up and forget but pay the others by due date. I'm trying to calendar everything on my phone and post-it notes to never be late (it's working successfully so far) but it sounds like I should wait till a balance hits my statement then pay before due date?

I always habitually pay along as I go throughout the month...

[Anonymous]

Then you're not at All Zero because you slip up and let some cards report a balance before pay in full before due date so the slip ups are good and what saved you from the All Zero penalty, always allow at least one slip up each month to avoid the penalty. Personally I put everything on autopilot, I let every charge post naturally to every card statement and set every card on autopay to pay the full statement balance on or slightly before due date, never have to track anything other than making sure the payment account is fully funded for autopays.

Back to your original question on whether closing a card will ding your score, the answer is your UTI before and after card closure, if your before UTI was 1% and after UTI is 5% then the answer is no, if after UTI is 12% after losing the CL on the closed card, then yes it will ding your score because you cross over one of the UTI scoring thresholds of 8.9%.  (UTI = total reported statement balance / total credit limit)

If you would post details of all your card's current statement balance, credit limit and which card you wish to close, it would be much easier to explain.

[Anonymous]

Oh okay now that's much clearer per your UTI expanded explanation. So timing is of the essence too when this calculation goes into play if you crossover or not on the threshhold. Thanks again! I've yet to explore auto pay I do pay ahead via scheduled payments on some of my accounts...

[Anonymous]

Yes now I think you get it, UTI scoring thresholds are 8.9%, 28.9%, 48.9%, 68.9% and 88.9% for aggregate UTI, 28.9%, 48.9%, 68.9% and 88.9% for individual card UTI. Also UTI has no memory so even if you got dinged for 10 points because you cross over a threshold after closing a card, you will get all the points back next cycle by bringing UTI under said threshold.