Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes “Speaking of Credit,” a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
Dear Speaking of Credit,
I had a long history with a personal line of credit with Bank of America in the amount of $30,000. In May 2016, I was advised that BofA was no longer offering the product and therefore the credit line was “closed.”
I contacted BofA to see if there was a replacement product, other than a credit card. There wasn’t. At the time it was closed, it had a balance and there remains a balance. It has been reported as closed by me.
Should I contest this to find a way to report it as product no longer offered or some other indication, or is it best to leave it as it is? I appreciate any thoughts you may have. Thank you. – Angela
From your question, you seem to be well aware that different credit scoring impacts can come from even the slightest of reporting variations.
For example, a card account with a payment history accurately reported as “current” can be better for your score than that same account reported as “current – was 30 days delinquent.”
Both may be true, but the latter contains more score-damaging information than the other. This is why it makes perfect sense for you to consider contesting the reporting of your recently closed Bank of America revolving line of credit.
Fortunately, despite the many ways for your credit report to make you worry, the circumstances around why an account was closed or by whom, the consumer or creditor, never enter the scoring picture. This is not to say, however, that closing an account can’t affect your score. It can, as will be shown later.
Yet while not affecting your score, some details of an account closure such as those mentioned could be a factor in a limited way, if, instead of the usual automated credit application processing, a live human actually reads your credit report. Or maybe you just want to feel better about how your credit report portrays your true creditworthiness to a prospective lender.
Either way, there’s good news in the form of a free 100-word (maximum) consumer statement added to your credit reports that tells your story in your own words. These statements can be seen by anyone with access to your credit information and will remain for a period of two-years-to-indefinitely, depending on the credit bureau.
The bad news, and something you may have already guessed, is that lenders simply aren’t interested in any information on a credit report that hasn’t been shown to be a predictor of future credit risk. The reality is that these consumer statements are widely ignored in all but a very few instances.
Still, though, a small “old-school” bank or credit union, or perhaps a potential landlord, may take the time to read and consider your specific individual situation. Otherwise, the only benefit coming from a consumer statement is the peace of mind from knowing your credit is being reported truthfully.
To add a consumer statement, contact each of the three major credit bureaus – Equifax, Experian and TransUnion.
Video: What is your credit utilization ratio?
Heads-up, as you wind down to a $0 balance
Incidentally, since you mentioned you still owe on that line of credit, be aware that if you carry any other revolving balances from month to month you could see your combined utilization rise, and your score drop, after making the last payment on that remaining balance. Credit utilization, the amount you have borrowed compared to your credit limit, is the second most important credit scoring factor, after making on-time payments.
While not always the case, the villain when it does occur tends to be this scoring rule that applies to closed revolving accounts, such as cards or revolving lines of credit:
- A closed revolving account with a balance higher than $0 will be included in utilization calculations.
- A closed revolving account with a $0 balance will be excluded from utilization calculations.
Knowing about how this works can be helpful when paying off a revolving balance, particularly as you get down to the last few payments and are hoping for a higher score following the payoff.
At that time, a low utilization percentage on your account – likely between 1 and 10 percent – is exactly what your score wants to see. And it is especially welcome when helping to offset other highly utilized revolving accounts as part of the combined utilization calculations that include revolving accounts that are either open or, like yours, closed with a balance.
Unfortunately, once that closed account has been paid in full, its $0 balance and $30,000 credit limit will forever be eliminated from your score’s utilization calculations.
And with it, while still contributing to your score via some good payment history, account age and other factors, you can say goodbye to the positive influence it was having on your utilization and score.
The chances of seeing your score drop for this reason will mainly be set by the balances and credit limits on your other revolving accounts.
- Generally, the higher the combined utilization on your other accounts, the more likely you will experience a lower score upon paying off this one.
- Should that happen, the only quick remedy will be to pay your other balances down, or off entirely, which you should do anyway if at all possible.
Otherwise, expect to see your score slowly creep back up over time as your other revolving balances work their way down, your length of credit history steadily ages and other positive factors continue to add more points to your score.
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