Closed card and Fico

[Anonymous]

I have a Merrick card that I closed two years ago. Limit was 1000$ and balance is about 740$. I’ve been making just the minimum payment each month of 41$. Since it’s closed does it still affect my Fico? Would paying it down increase my scores or does a closed card have no effect? I regret closing it because I pay in time each month but wonder if that even matters since I closed it. Would they do a hard inquiry if I asked them to reopen? I would like a new cc but am afraid to get another hard inquiry since I have so many already from past two years and I’m trying to get mortgage loan.

[DollyLama]

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@Anonymouswrote:
I have a Merrick card that I closed two years ago. Limit was 1000$ and balance is about 740$. I’ve been making just the minimum payment each month of 41$. Since it’s closed does it still affect my Fico? Would paying it down increase my scores or does a closed card have no effect? I regret closing it because I pay in time each month but wonder if that even matters since I closed it. Would they do a hard inquiry if I asked them to reopen? I would like a new cc but am afraid to get another hard inquiry since I have so many already from past two years and I’m trying to get mortgage loan.

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Yes it affecting your FICO score, since closed with a balance, it is perceived by FICO as running 100% utilization on this closed account, regardless if balance is 740 or $10.00. So paying it down is not helping the score either. Pay it off in full, especially since you are preparing for a mortgage. They would most likely hard pull to reopen the account since it has been 2 years since you closed it. Better safe than sorry, since your goal is for a mortgage. 

[Anonymous]

Thank you for replying. So if I pay off this closed account to zero will that increase my scores significantly? By the way your scores are great how did you get that high? My current Fico 8 is: 603, 632, 656.

[Anonymous]

To really answer the above question, you'd have to provide what your additional credit limits are and current balances to go along with those limits.  Getting rid of a maxed out account may help your score a bit, maybe 10-20 points, but the real impact would be if that changed your aggregate utilization across a threshold.  If you only have one or two other cards with small limits, you'd stand the chance of seeing a far greater score gain than if you have more cards with larger limits, as the $740 as a percentage of your total limits here is a big factor when figuring aggregate utilization.  Aggregate utilization is King to individual utilization.

[Anonymous]

Does aggregate utilization mean that for example if I have two ccs my utilization on BOTH should total less than 30%? So if one cc utilization is 10% but on another cc it’s 25% then I need to reduce one? Thanks

[Anonymous]

DL and BBS can you give you great advice.  What they will no doubt explain, given that you have a practical need to prepare for a mortgage, is that (ideally) you want to pay all cards to $0 except for one.  The one remaining card should be:

(1)  An open card (not a closed one)

(2)  A card in your name (not an AU card)

(3)  A true credit card (not a charge card)

(4)  A card with a balance of $5-20

(5)  A card with a credit limit of < 29k

If you list for them all of your cards and the balance and credit limit on each, they can make a guess as to how much benefit that will get you.

[Anonymous]

Thank you to all. Do here are the only credit cards I have it’s only two:
Capital one platinum SL $500 current balance is 5$ as of statement ending 2/21
And lastly: Merrick Bank SL 1000$, balance approx 740$ But this is s closed account that I closed two or three years ago.

[Anonymous]

I'll let BBS and Dolly confirm, but I think the way that total utilization is this.  You add up all your revolving balances (open or closed).  Call that AMOUNT OWED.  Then you add up all your credit limits, but only of your open accounts.  (A closed account is considered by  FICO to have a $0 limit.)  Call that TOTAL CREDIT LIMIT.

Then your total utilization is AMOUNT OWED / TOTAL CEDIT LIMIT.

By that calculation your total utilization is 745 / 500 or well over 101%.  That is extremely bad.  You should pay off your closed account.  Then your utilization would be 5 / 500 = 1%.

BBS and Dolly can help you better if you tell them when you might want to buy a house.

[Anonymous]

Well I’m trying to buy a new build ASAP . Hoping for preapproval by end of April. My middle score is 677 for Fico 542 so I will pay off that closed account over the next few weeks.

[Anonymous]

If you're at > 100% utilization and pay off that account bringing you down to single-digit utilization, that's a complete game changer to the tune of a 50-100 point gain.  Your scores would all be in the 700's, likely 750 or so IMO, which would allow you to snag the best possible interest rates on a potential mortgage.