Question on Creditor Closed Credit Card Line with Balance and Effect on FICO

[Anonymous]

I had a Bank of America credit card opened last year. BoA closed it after 5 months of use because my FICO score dipped a little when I maxed the card out. I've been paying the minimum monthly balance every month.

The card shows up on my credit report as Closed, but payments made every month are still being reported. 

It's been a year and I've almost paid off all the balance to zero. However, since I see that my monthly payments are still reported to the credit bureaus, I wonder if it's better to just keep it open with a low balance and just keep making the minimum monthly payments every month. Does it matter to my FICO scores? How does it affect the age of my account if I keep this "closed by creditor" account "alive" by keeping a small balance?

I'm assuming once I've paid the card down to zero, BoA won't report to the credit bureaus anymore.

[Anonymous]

Typically if a card is closed with a balance, it means you then have a credit line of $0, so any balance on the card will show up as >100% usage. The card is effectively beyond maxed out. I would pay it off as soon as possible and move on. The account isn't coming back, so get it to zero and end the maxed-out penalty you're likely incurring on your scores.

[M_Smart007]

This^^^^^^^^^^^^^

[Remedios]

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@Anonymous wrote:

Typically if a card is closed with a balance, it means you then have a credit line of $0, so any balance on the card will show up as >100% usage. The card is effectively beyond maxed out. I would pay it off as soon as possible and move on. The account isn't coming back, so get it to zero and end the maxed-out penalty you're likely incurring on your scores.

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@Anonymous  I'm sorry but I gotta do this 

Some accounts report with 100%  utilization, but those are charged off accounts for the most part.

A lot of people have closed accounts with significant balances to preserve the terms, and those accounts do not report as 100% utilized.

I've closed accounts while they still had balance, and lender reported business as usual for a month (other than account being closed).

I really wish this myth would die.

OP, pay off closed account. This isn't the time to test lenders. If you cannot pay it off completely, pay what you can. 

[Anonymous]

@Remedios no apology needed - if I'm wrong I would want it pointed out. I do know that some work that way but my understanding was that it's usually when requested by the consumer. From what I have seen on here, when the creditor closes a line with a balance, often the member reports it with a $0 line of credit which would result in the maxed-out reporting. I went on that assumption since OP didn't specify whether the LOC was showing as intact or not.

[Remedios]

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@Anonymous wrote:

@Remedios no apology needed - if I'm wrong I would want it pointed out. I do know that some work that way but my understanding was that it's usually when requested by the consumer. From what I have seen on here, when the creditor closes a line with a balance, often the member reports it with a $0 line of credit which would result in the maxed-out reporting. I went on that assumption since OP didn't specify whether the LOC was showing as intact or not.

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Most of them report normally unless loss incurred. Typically, preemptive AA (maxed card, but no loss) will report normally till paid off, so will cards closed on consumer's request. 

Should consumer be late, or default, all bets are off, as most will start reporting $0.00 for limit, with the actual balance. 

[Anonymous]

Ok that's good to know then, and hopefully OP returns for the clarification

[NRB525]

The credit limit the bank reports with the card is what is used for utilization calculations. Whether closed or open. 

I had a low remaining balance on a closed card with a Forever BT rate of 1.99%. I used another secured card at $500 to show that score was affected by bringing this $500 card close to maxed out, along with two other cards that happened to go over 50% during the same time frame. Score dipped a bit, then came back up as these cards went up and then down in utilization. If the closed card were considered maxed, these other cards would not have had effect on score as the "highest utilization". There is a thread in the Understanding FICO Scoring forum where I documented all of it.  

There are some oddities about how the closed card is included in balance totals reported, but a low balance on a closed card isn't a problem. 

A closed card that is actually near 100% utilization because of the actual credit limit, yeah that is in fact high utilization. But that's irrespective of the closed status. 

I'd pay it off anyway, since it is unlikely you have a low APR on the balance. The account aging will continue in your favor for several years anyhow.  

[K-in-Boston]

Bank of America isn't mean.  They simply identified a high risk situation and closed the account. It happens all the time, and can happen with any lender if their risk tolerance is exceeded.  The closing would have been due to perceived high risk, which was in the form of the card being maxed out.  While that will certainly cause a score to dip, both the score dip and the account closure are due to high utilization, the most important credit factor after on-time payments.

As Remedios mentioned, in the vast majority of cases, cards closed with balances like this situation will continue to report the original credit line and factor in exactly as an open card would for utilization (until the balance reaches $0) and average age of accounts.  Any scoring penalty you received for the card while it was closed is the same as the penalty you would have received had it remained open.  Cases where the limit is reported as $0 or the same as the balance do happen, but they are rare when it's for risk avoidance or by consumer, and those are a worst-case scenario for scoring.  BOA is not one of those lenders.