Closed Credit Card Account With Balance?

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Closed Credit Card Account With Balance?

Postby Satch99 » Sun Sep 26, 2010 1:37 pm

I have a Citibank card with a promotional rate of 1.9% that is scheduled to revert to its purchase rate of 18.99% in about one month. About 6 months ago when Citibank attempted to raise my purchase rate to 29.99% I had the account closed. The statement shows my limit is $11,500 and the current balance is $10,200.

The thought of paying 18.99% on 10K sickens me, but if I pay off the balance in full, my debt-to-available credit ratio goes up (because the card has been closed), and I am less worthy in the eyes of a lender. I have perfect credit, but my debt-to-available credit ratio is really bad... Everytime I pay down a card, my limit gets cut to just a hundred dollars or so above the balance. I am self-employed and depend on credit cards for times of poor cash flow, so I've been reluctant to pay down balances because I am afraid that if I pay down a credit card, I will lose access to that credit.

So, what are your thoughts of paying the balance down to about $2,000 and then just making the minimum payment until the card is paid off? How will that look on my credit report (i.e. - will it appear as a $2,000 balance on a credit card with a limit of $11,500? Or, will it appear simply as a $2,000 balance with no available credit?)

Thank you for your replies.


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Postby Mogul of Pineapples » Thu Sep 30, 2010 9:41 pm

Satch99, this is a rough situation to be in. That's the problem with opting out of changes - basically we are screwed either way.

The debt to available credit ratio is calculated two ways. One is based on a per account calculation and the other is an average debt to credit ratio across all revolving accounts. Your calculation for this individual account I believe will always be the same bad ratio if Citi cuts your limit to your current balance everytime it goes down.

The credit utilization ratio average across all accounts will likely be affected the same way. Unless FICO takes into account the dollar amounts on each when averaging them, instead of just averaging their CURs percentages.

I take it the high utilization is killing your score right now. Otherwise I would say the best option may be to split up the balance between a few other cards via transfers. Would that be an option?
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Postby jds2001 » Sun Dec 12, 2010 4:25 pm

Satch99 wrote:So, what are your thoughts of paying the balance down to about $2,000 and then just making the minimum payment until the card is paid off?

Well, thanks to the financial reform, I see on my card statements what the payoff time would be if I made only the minimum payment (thank goodness I don't!). It would reportedly take me 22 years (yikes!) to pay off my $3K balance. The minimum payments are really geared towards making money for the card issuer, not getting you out of debt in any way (Also, paying the minimums I would pay more than double the $3K that I owe). Not advisable.

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Postby Pete838 » Mon Dec 13, 2010 11:54 am

It sounds like you might try to find a new card or credit line to transfer the balance to. If they lower the credit line limit every time you make a payment then the utilization % will likely stay the same whether you prolong your misery by making small payments or go ahead and pay the card off.
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Postby infomaniac » Sat Jan 08, 2011 2:36 pm

A transfer would be the way to go.

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