credit utilization on closed accounts with balance

[satio]

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@RobertEG wrote:

The CRAs permit creditors to report closing of revolving accounts that still remain active in order to contain risk by terminating ability to add additional charges, thus increasing the debt balance.  In other scoring ways, closure does not usually affect scoring

While I have seen posts asserting that closed accounts, and particularly those that have been reported as charged-off, are treated by FICO as being at 100% util for scoring purposes regardless of posted credit limit, I have never seen any official confirmation of that assertion.

In  posts from a few years ago, it was common wisdom on this site that accounts, open or closed, that show a credit limit and current balance are included in scoring with calculation of % util being the standard balance/CL.

I have not seen confirmation that closed accounts are all scored as if they were at 100%.

Do others have anecdotal posts that clearly demonstrate how closed accounts are scored in % util?

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I can share the facts for how EX calculcates and appears to be the same for TU and EQ .

EX takes all balances for both active and closed (with a balance owing) and divides it by the total CLs for all closed accounts with NON ZERO balances PLUS the CLs for all active accounts.

I paid my active accounts to zero balance. I have (2) charge offs showing on my Experian report. My utilization is reported as 51% based on the above formula. The balances on the charge off accounts are actually HIGHER than the CLs for each account.

I am in the process of settling these CO accounts this month. I actually have (3) but EX only has 2 that are reporting. TU and EQ have all 3.

Hope this helps...

[BallBounces]

Thanks for the evidence, satio.

Would be interesting to pay ONE of those Cos, to see what the %UTL is for a motnh, then pay the other. I am of course not expecting you to do this but it would give another data point.

Question:  When you mention 51%: where exactly is that reported on your Experian report?

[satio]

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@BallBounces wrote:

Thanks for the evidence, satio.

Would be interesting to pay ONE of those Cos, to see what the %UTL is for a motnh, then pay the other. I am of course not expecting you to do this but it would give another data point.

Question:  When you mention 51%: where exactly is that reported on your Experian report?

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The settlement offers I have for 2 accounts reporting on EX (and TU and EQ) are good till 5/31 so I am going to clear them both this month.

However, for TU and EQ there is an additional account that I will not clear up till next month so I will share what I find as the utilization showing from those CRAs once the (2) COs clear to zero.

[Anonymous]

I once thought that FICO treated closed accounts with positive balances as if they were at > 100% individual utilization.  One reason is that there were a few cases of score drops (from a few years ago) that seemed hard to explain otherwise -- a few anecdotal cases. 

But the other reason is how FICO treats these kinds of closed accounts with respect to total/aggregate utilization.  Specifically, FICO adds their balances to the numerator (total CC debt owed) but treats their limits as if they were $0, even if the credit report says otherwise.  I.e. the debt counts against you but the limit doesn't count toward your total credit limit.

If FICO was treating the limit of the closed account as $0, then it would make sense that for the individual utilization FICO would see the balance as > limit (i.e. maxxed out).

But in the last year more than one person has been trying to test this 100% theory out, much in the way a contributor on this thread just mentioned.  And these different people are not seeing any impact with respect to a card at 100%.  (Note: we'd only expect to see a certain impact if all other cards were at under 48.99% -- maybe some of these cases of no impact are people who already have a highly utilized card).

So now I am personally leaning toward the idea that closed accounts are removed from Invidual Util consideration by FICO 8.  Not sure what the older models do.  And not even sure what FICO 8 does -- just that I used to think the 100% idea was settled and am now leaning a bit the other way.

I have not had any closed cards with balances for 15 years, so I have no practical experience with it myself.

[Anonymous]

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@Anonymous wrote:

I'm interested in knowing that as these balances on closed accounts decrease over the next few years if they will most likely positively impact my credit score or not.

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Paying the balances down will help your Total Utilization.

Gradually paying them down will not help your Individual Utilization.  Either the 100% theory is correct, in which case a balance of $1 would still exceed the limit of $0 and you'd be at > 100% -- or FICO 8 ignores closed cards for its Individual Utilization calculation, in which case you will not get IU help by paying them down.

See my post above for a more detailed discussion.

[Anonymous]

I feel like this would be fairly easy to test, to the point that we'd have far more data points on it than just the couple in this thread.

Most of the time, someone planning to close a card plans to do so because they see no use for it any longer.  Quite often the card sits at a $0 balance and hasn't been used in a while.  All they would have to do prior to closing the card is to make a tiny purchase on it, $5+ to ensure it reports.  Once it reports, pull FICO scores.  Then, close the card.  The card will report closed, but with a (non-zero) balance.  At that time, pull scores again.  If scores drop (say) 10 points, it could be from the closed card being viewed as maxed out.  Simple enough to test, pay off the $5 balance, pull scores again once $0 is reported.  If 10 points come back, we can with fairly high certainty say that the closed account was indeed being viewed as maxed out by the FICO algorithm.

[Anonymous]

I was thinking along the same lines BBS. Should be a simple test not a long time controversy I wouldn’t think, unless there’s something we’re missing.