I should know the answer to this and I tried searching the board but didn't see an answer. Basic question is which is better from a scoring standpoint; paying off a closed account in good standing or paying down an open account?
I will be consolidating most of my credit card debt into a consolidation loan this month. I'm not including my Citi Costco card in the consolidation because the interest rate difference between it and my loan will be small. I was settled on my strategy but one of the accounts included in the consolidation is my Barclays account (now Comenity) which is closed in good standing. If I stick with my original strategy the closed Comenity account would be paid off and my Citi Costco card will be the only account with a balance but have a very high utilization (over 88.9%).
My question is what is better from a scoring standpoint?
Option A - Pay off the Comenity account completely leaving the Citi Costco card open with high utilization
Option B - Pay down the Citi Costco card below 68.9% utilization and pay down the Comenity account some
Option C - Pay down the Citi Costco card as much as possible and make minimum payment on the Comenity account
I'm not too concerned with the interest rate difference because I plan to apply for a 0% BT card in 3 months when my scores improve with the utilization drop so my main focus is improving my scores the best way possible prior to that.
@sportsguy83 wrote:I should know the answer to this and I tried searching the board but didn't see an answer. Basic question is which is better from a scoring standpoint; paying off a closed account in good standing or paying down an open account?
I will be consolidating most of my credit card debt into a consolidation loan this month. I'm not including my Citi Costco card in the consolidation because the interest rate difference between it and my loan will be small. I was settled on my strategy but one of the accounts included in the consolidation is my Barclays account (now Comenity) which is closed in good standing. If I stick with my original strategy the closed Comenity account would be paid off and my Citi Costco card will be the only account with a balance but have a very high utilization (over 88.9%).
My question is what is better from a scoring standpoint?
Option A - Pay off the Comenity account completely leaving the Citi Costco card open with high utilization
Option B - Pay down the Citi Costco card below 68.9% utilization and pay down the Comenity account some
Option C - Pay down the Citi Costco card as much as possible and make minimum payment on the Comenity account
I'm not too concerned with the interest rate difference because I plan to apply for a 0% BT card in 3 months when my scores improve with the utilization drop so my main focus is improving my scores the best way possible prior to that.
It's never a good idea to close a card with a balance. If you have a closed card with a balance you should prioritize paying it off.
Closed cards with balances are anathema to your credit score. The credit limit is no longer factored into your scores, but the balance is. Some institutions even report them as maxed out cards, with the current balance being the current limit.
@SouthJamaica wrote:
It's never a good idea to close a card with a balance. If you have a closed card with a balance you should prioritize paying it off.
Closed cards with balances are anathema to your credit score. The credit limit is no longer factored into your scores, but the balance is. Some institutions even report them as maxed out cards, with the current balance being the current limit.
Thanks, that was my impression and confirms my original strategy was correct. For the record I didn't choose to close it with a balance Barclays took AA and closed it (despite perfect payment history). It is marked closed but still shows the utilization when I pull my 3B report which seemed odd based on what I have read on here re: closed accounts.
@sportsguy83 wrote:
@SouthJamaica wrote:
It's never a good idea to close a card with a balance. If you have a closed card with a balance you should prioritize paying it off.
Closed cards with balances are anathema to your credit score. The credit limit is no longer factored into your scores, but the balance is. Some institutions even report them as maxed out cards, with the current balance being the current limit.
Thanks, that was my impression and confirms my original strategy was correct. For the record I didn't choose to close it with a balance Barclays took AA and closed it (despite perfect payment history). It is marked closed but still shows the utilization when I pull my 3B report which seemed odd based on what I have read on here re: closed accounts.
Yeah I figured as much. Just wanted to throw in a public service message so people know not to voluntarily close accounts which have a balance.
I had the same thing happen to me once. Bank of America apparently wasn't happy with my having taken them up on a generous 0% balance transfer promo, so they closed my account one day, with a pretty big 0% balance out there. I decided to take my sweet time paying it down, so as not to be cheated out of my 0% APR, and to use it as a learning opportunity. I got to carefully observe how the FICO algorithms were treating it. And it wasn't a pretty picture. Balance counting, limit not counting.
An even worse scenario occurred with Santander Bank. I had some PLOC's, which are scored just like credit cards, which had an expiration date on their "draw" period, meaning no more withdrawals can be made, and the loan must be repaid in monthly installments. I was all set to pay them back gradually with the monthly installments, until I learned that Santander was reporting them as closed revolving accounts, with the credit limits equal to the current balances.... i.e. as 100% maxed out accounts. I of course accelerated the repayment of those.