Utilization vs DTI/closed accounts?

[Anonymous]

Hello to all. 

In my rebuilding process, I am just one month into a debt management program with Greenpath.  It takes a bit of setting up, but overall I'm happy with progress.

Starting scores are in the 650's range, in large part because of being multi-maxxed out. As part of the DMP, my accounts that are on the program are now closed.  While I know that obviously my DTI won't change, how does closing accounts that have a balance impact my utilization?  

Thank you!!

[Anonymous]

Two key points:

(1)  FICO treats every closed card as having a credit limit of $0, even if the credit report says the limit is (say) $5000.

(2)  When a card has a balance that is greater than its credit limit, FICO treats that card as having an individual utilization of > 100%.  (Individual Util means the card considered by itself.)

Taken together, these two things mean that a closed card with a positive balance is considered maxxed out.  That is bad for your score, since individual utilization is one of the things FICO looks at.

But FICO also looks at total utilization (which is all cards combined together).  Before your cards were closed, they had credit limits of $1000, $5000, whatever.  And these limits contributed to your total credit limit.  But now those cards all have limits of $0.

Their balances still count, however.  So your total utilization has gone up, which is also bad.  In fact, it's possible that your total utilization could be even greater than 100% now.

[Anonymous]

Thanks for the info....this question has been bugging me.  I knew my scores would take a hit when I started the Debt Management Program, and thus far they haven't yet. I'm guessing that's because I'm just one month into it, and when everything updates in December, I'll see the nosedive from the closed accounts.  But this is still a move in the right direction, and I'm happy I did this!!

Thank you!

[RonM21]

OP, keep us updated on your progress! Most of us started somewhere lower than we wanted to be, but it is nice to see people turn it around to success.

[NRB525]

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@Anonymous wrote:

Two key points:

(1)  FICO treats every closed card as having a credit limit of $0, even if the credit report says the limit is (say) $5000.

(2)  When a card has a balance that is greater than its credit limit, FICO treats that card as having an individual utilization of > 100%.  (Individual Util means the card considered by itself.)

Taken together, these two things mean that a closed card with a positive balance is considered maxxed out.  That is bad for your score, since individual utilization is one of the things FICO looks at.

But FICO also looks at total utilization (which is all cards combined together).  Before your cards were closed, they had credit limits of $1000, $5000, whatever.  And these limits contributed to your total credit limit.  But now those cards all have limits of $0.

Their balances still count, however.  So your total utilization has gone up, which is also bad.  In fact, it's possible that your total utilization could be even greater than 100% now.

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What is the source for this info, that closed accounts do not report any less than 100% utilization?

I was paying down a couple of closed cards with balances, still have a closed Citi card, with a balance of $550, I have been milking it for years paying $30 per month with 2% APR. The card itself shows a credit limit of $5,690 on the statement, and on the MyFICO score reports that I get.

I have FICO 8 scores of 816 - 820 right now, due to having 14 - 16 cards reporting some sort of balance, out of the 23 Open cards I have ( plus the reporting of one closed card, excluding AMEX Gold ). Also two new cards within the last 12 months, a HP for a CLI, HP for an auto loan and personal loan I am cosigner on within the last several months.

Utilization overall is something like 5%. I took a score drop in late September, when my SPG Luxury card reported 53% utilization. That 50% level I noted in 2015, when all my cards passed under 50% individually, score ramped up nicely. Said differently, the SPG card at the time, was my highest utilization card, thus led the way with a score decline when it went over 50%.

If I had a "maxed out Utilization" card, specifically on this closed Citi card, I don't think my score would be this high. The closed card would be leading the drag down, would not allow the SPG Luxury card to influence score so much in September.

[Anonymous]

NRB525, what are your other age of accounts factors?

I agree that your scores are right about where you'd expect them to be with an AoYA of 2 months and a ton of accounts with balances reported, plus a couple of inquiries. I would expect your scores to be a bit lower if you had a single maxed out account factored in. Good information and discussion here.

[NRB525]

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@Anonymous wrote:
NRB525, what are your other age of accounts factors?

I agree that your scores are right about where you'd expect them to be with an AoYA of 2 months and a ton of accounts with balances reported, plus a couple of inquiries. I would expect your scores to be a bit lower if you had a single maxed out account factored in. Good information and discussion here.

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Ran my quarterly report here, before it expires....

FICO 8   EQ=819  TU=826  EX=816

Age of Oldest active accounts are in 2001. One from 1998 still shows up, closed in 2015, so Age of Oldest Account is 20 years.

Average Age of accounts is 6y 11 months.

Newest account is 3 months.

Credit utilization in the FICO 8 score is 4%

Inquiries are something like 4 or 5 total in the past year.

In the dynamic FICO Report screen, where MyFICO distinguishes between "Closed" accounts and "Open" accounts, you get a pull-down menu to show all Open or all Closed accounts. I don't get any results for "negative" accounts, unfortunately.

All my "Closed" accounts, as defined here, whether closed by customer or closed by issuer, are closed and have zero balances. The account in question, which is actually closed with a remaining balance, is not in the MyFICO list of "Closed" accounts from this pull-down listing.

In the list of "Open" accounts, this includes the actually closed Citi account, with a remaining balance being paid. It shows a 10% utilization rate, and has the notation in the details "Account closed at customer request".

[Thomas_Thumb]

My thought has been closed accounts count toward aggregate utilization. I tend to agree that a closed account has zero credit limit so influence on aggregate is the debt obligation.

What is unclear is whether or not closed revolving accounts are even looked at on an individual basis relative to card utilization. I tend to think they are ignored in that particular scoring attribute. The data from NRB525 tends to suggest this may be the case.

[Anonymous]

I would tend to agree with you above TT.  Based on his age of accounts factors, I feel like if he were to take his AoYA to 12+ months and his 4-5 scoreable inquiries were eliminated that he'd stand a good chance of grabbing 850(s).  I don't think that would be possible if a 100% utilization individual revolver was being "seen"by the algorithm.  Just my opinion, of course.

[Anonymous]

Hi guys.  The belief that closed accounts with a positive balance are treated as maxxed out was based on a handful of cases over the last few years -- specific situations where it was very difficult to explain why the person was experiencing a strong penalty except by that conjecture.  I wish I could direct you to any of these but I never recorded the URLs.  (Revelate was involved in at least one of those discussions.)

The fact that a person's credit reports might show the old higher credit limit unfortunately doesn't shed any light on what the scoring algorithm on the back end might be doing.  This comes up all the time in the (different but analogous) case of AUs -- people say that their CMS (myFICO, Credit Check Total, CreditWorks Premium etc.) shows that their AU either is or is not part of their utilization in FICO 8.  But that's just how the CMS is programmed to render it -- it doesn't allow a person to reliably infer what the scoring algorithm is doing.

NRB, it would be very helpful if you paid off this credit card and then let us know what happens to your score.  It sounds like that would be pretty painless for you to do, if I understand you right.  Actually the best test would be to get all cards at under 48.9%, pull your scores, then pay off the closed card with the positive balance, then pull your scores again.  Is that doable?

PS.  Just for the record, I don't have a dog in this race.  The last time I had closed cards with a positive balance was 16 years ago, and that was way before I became interested in scores.  I do remember my scores jumping a lot when those accounts fell off, but their associated derogs fell off too so that doesn't prove anything.  I am happy with changing what I tell people if we have some clear test data that changes the landscape.