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Over utilization of credit cards and affect on credit

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Zippy9
Member

Over utilization of credit cards and affect on credit

Hello all. I unfortunately have been in a tight situation lately and have been near the 80% utilization mark for my available credit (I know, way over the recommended 30%... been trying to get there and only gotten worse). I had one of my credit cards closed and it caused a second one to close, meaning my utilization is now 100%. Luckily, that second one I was able to get a 0% hardship that will pay it off in a few years.

I have another one that is high interest that I’ve called and qualify for another 0% multi year hardship that will pay off the card but also close it, which will put my utilization over 100%. Is it better to close it and get it paid off or keep on fighting the battle? I know the pay off way it is better to just take the 0% but I don’t know the impact the over 100% will have on me. While we do not intend to need to open any credit in the future, I feel it may take a few years for my score to recover. Please provide any advice (and withhold the lectures please, I am well aware of the mess)
Message 1 of 6
5 REPLIES 5
K-in-Boston
Credit Mentor

Re: Over utilization of credit cards and affect on credit

Welcome to the forums!  80% overall utilization is already really hurting you score-wise.  As long as the lender reports the original credit limit of the card along with the remaining balance, FICO scoring will still count it as if it were an open card, so there would be no change in overall revolving utilization.  If they reported a $0 credit limit with a balance, that would be a worst-case scenario but not the end of the world.  In the middle, there's also the option that they would report your credit limit as whatever the current balance is (balance chasing); that one is also bad but not as bad as $0 limit.

 

The good news is that utilization has no memory!  As soon as it's under control, your scores and creditworthiness bounce back as soon as the credit reporting agencies have updated your reports.  If you will be able to continue paying down/off the closed card, that will be better for you financially as you're saving on interest, and it will also prevent you from acquiring any (or any additional) late payments, which would hurt you for quite a while.

 

Keep in mind that certain credit monitoring sites like Credit Karma may not be displaying accurate utilization information.  If you can list your cards with open/closed status, current limits (or if closed what is showing on your credit reports) and current balances, the community would be happy to help you calculate your actual overall utilization.

Message 2 of 6
Zippy9
Member

Re: Over utilization of credit cards and affect on credit

Thank you for the reply!

So if I am understanding you properly, let’s say a card has a $5k limit and is using all $5k. If you closed the card it should still show that $5k limit even though it’s closed?
Message 3 of 6
K-in-Boston
Credit Mentor

Re: Over utilization of credit cards and affect on credit

It depends on how the lender reports it. Usually we will see that the lender reports the current balance due along with the original credit line of the closed account.

 

For simplicity, let’s say you have a $5,000 balance and limit on this closed card and two other open cards with limits of $5,000 and balances of $2,500 each.

 

If they are reporting your $5k balance AND $5k limit, then it counts just like it is open. So you have one card at 100% utilization and two at 50%, along with using $10,000 of $15,000 total credit, or 66.67% overall utilization. Certainly not ideal, but once you get that paid down to a more reasonable amount your scores will recover thanks to both overall and individual utilization being lower. Once your balance reaches zero, that card will no longer factor in.

 

Again, if they are reporting it differently, it is going to affect you in different ways. But you do want to concentrate on paying down any account that is maxed or nearly maxed as that may cause other lenders to balance chase you and that is a tough predicament to get out of.

Message 4 of 6
Zippy9
Member

Re: Over utilization of credit cards and affect on credit

Thank you again!

I just know when you are in the rob Peter to pay Paul type situation you get stuck having to pay (example) $300 and $150 of that goes to interest. You then have to pay the remaining $150 on some bill to stay afloat and make zero progress on paying it down. If I can get 0% then I’m truly actually working to pay it down and it will be nice. Thanks for the help!
Message 5 of 6
SouthJamaica
Mega Contributor

Re: Over utilization of credit cards and affect on credit


@Zippy9 wrote:
Hello all. I unfortunately have been in a tight situation lately and have been near the 80% utilization mark for my available credit (I know, way over the recommended 30%...

30% is not good. Only uninformed people recommend it.

been trying to get there and only gotten worse). I had one of my credit cards closed and it caused a second one to close, meaning my utilization is now 100%. Luckily, that second one I was able to get a 0% hardship that will pay it off in a few years.

I have another one that is high interest that I’ve called and qualify for another 0% multi year hardship that will pay off the card but also close it, which will put my utilization over 100%. Is it better to close it and get it paid off or keep on fighting the battle?

Keep on fighting the battle. Every time you get a "break" from a bank you wind up paying the price for 7 years or so.

I know the pay off way it is better to just take the 0% but I don’t know the impact the over 100% will have on me.

It will have a bad impact.

While we do not intend to need to open any credit in the future, I feel it may take a few years for my score to recover.

Like at least 7 years

Please provide any advice (and withhold the lectures please, I am well aware of the mess)

 


Total revolving limits 657200 (536700 reporting) FICO 8: EQ 706 TU 714 EX 715

Message 6 of 6
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