Credit Score: How does utilization work with closed accounts?

[ascorbic]

I have three closed accounts which are in repayment. Does the credit limit on those closed cards contribute to my overall credit utilization? (I know the balances do)

When I check my credit score at myfico the biggest negative is my overall credit utilization is too high.

I am wondering how is credit utilization calculated. Is it

(open + closed credit balances) / (open + closed credit limits)

or

(open + closed credit balances) / (open credit balances)

If the method used is the second, I have no hope at improving my score until the balances are paid off 100%.
If the method used is the first then it makes sense to pay the cards off slowly (the interest rates are 0, 0 and 2.75, these are in negotiated but full repayment plans) and just get their balances down a little bit.

[cjscully]

Closed accounts are only considered if they still have outstanding balances and the credit limits on those accounts are also taken into account. What can trip you up though is that the creditors can reduce the limit to the amount owed on the card at the time the account was closed. This means that account will have 100% utilization at that point and will be a problem until you pay the balance down by 50-70%.

[JoshuaHeckathorn]

Yep- you should include both the limits and balances of the 3 closed accounts when calculating your CU ratio. Once the closed accounts reach a zero balance or the creditors no longer report your credit limits to the CRAs, you can then expect the card to completely drop out of the calculation.

[ascorbic]

What can trip you up though is that the creditors can reduce the limit to the amount owed on the card at the time the account was closed. This means that account will have 100% utilization at that point and will be a problem until you pay the balance down by 50-70%.

The cards were closed because they were over their limit from late fees. Right now I am at 70% utilization on the two with 0% APRs. 25% on the one with 2.75%

Yep- you should include both the limits and balances of the 3 closed accounts when calculating your CU ratio. Once the closed accounts reach a zero balance or the creditors no longer report your credit limits to the CRAs, you can then expect the card to completely drop out of the calculation.

Awesome. I am thinking I will have a slightly better score when these accounts are almost paid off. Once they are 100% paid off my score will probably drop some so I think I will keep the zero percent accounts around a littler longer and focus on saving rather than rushing to pay them off.

Thanks!

[disneysteve]

Once they are 100% paid off my score will probably drop some so I think I will keep the zero percent accounts around a littler longer and focus on saving rather than rushing to pay them off.

Why are you so concerned about your credit score right now? Are you looking to get a mortgage or some other new loan?

[Radiance]

Let me say, I focused on paying them out, then closed all but two, I have not used them in a year and my credit score continues to rise!