Edited by: Keri Stooksbury
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Are you ready to pay off a credit card and wonder if it will improve your credit score? Generally, yes, you should expect your credit score to go up when you pay off a credit card in full. Making a credit card payment in full helps your credit score by adding an on-time payment to your credit history while lowering your credit utilization.
However, don’t make the mistake of thinking a single large payment will be a magic bullet for your credit score. If you’ve neglected your credit card account for months or years with late or only minimum payments, paying it off in full won’t erase all of your adverse credit history. And you can hurt your credit score if you pay off your credit card and then close the account.
Still, paying off your credit card is a great way to boost your credit score as you maintain good credit habits. And clearing a credit card balance can help you avoid interest charges, so you can improve your credit and save money at the same time.
Let’s look into how credit cards can positively and negatively affect your credit score and what happens to your credit score when you pay off a credit card in full.
How Credit Cards Affect Your Credit Score
Credit cards can significantly influence your credit score, whether negatively or positively. If you use most or all of your credit limit, make late payments, or open a string of new accounts in succession, that can negatively affect your credit score. Using a small amount of your available credit, making payments on time (and ideally in full), and only opening new credit card accounts when needed can positively affect your credit.
Does paying off your credit card improve your credit score? Yes, a paid-in-full credit card can have a distinctly positive effect on your credit score because credit card payments can positively affect your payment history and credit utilization — the 2 most important factors for your credit score.
Let’s look at some of the factors that influence your credit score and how using credit cards affects each aspect.
Payment history makes up 35% of your FICO credit score and 40% of your VantageScore. It’s the most important credit score factor because creditors want to see that you can consistently pay your bills on time.
What happens when you pay off your credit card in full: You positively affect your payment history when you pay off your credit card in full, assuming you make the payment on time. Over time, that can help you build a positive payment history. A positive payment history — months and years of on-time payments — is the foundation of a great credit score and is less easy to improve than credit utilization quickly. Ideally, you should pay off your credit card in full every month, but at least make the minimum payment on time.Hot Tip:
You can avoid interest fees when you pay off your credit card bill in full each month.
Credit utilization is nearly as important as payment history, making up 30% of your FICO credit score and 20% of your VantageScore. It’s also related to balances, which make up 6% of your VantageScore, and available credit, which is 2% of your VantageScore. Credit utilization matters because using most or all of the credit available to you is a red flag that tells creditors you may be overextended.
The rule of thumb is to keep your credit utilization ratio under 30%, though you may want to aim lower if you seek a perfect credit score. According to FICO, people with exceptional credit scores generally use about 7% of their available credit.
You don’t have to carry a balance to maintain a healthy credit utilization ratio. Your credit utilization relies on your statement closing balance, which is how much you owe when you get your statement. You can pay off your balance each month and make new charges, and your credit card company will report your new balance each month. You also have the option to pay your bill — in part or in full — before your statement closes, and your credit report will reflect the balance after your payment.
What happens when you pay off your credit card in full: Paying your credit card bill in full can positively affect your credit utilization ratio, though it depends on how much you’re charging each month in relation to your credit limit.
- If you’re using 50% of your available credit each month and then paying it off, your credit report will still reflect that you’re using half of your available credit, which can drag down your credit score.
- If you pay off your credit card bill in full before your statement closes, your credit report would reflect a 0% credit utilization.
- If you aim for perfect credit utilization, you can charge about 7% of your available credit and then pay it off each month.
Length of Credit History
The length of your credit history makes up 15% of your FICO credit score and 20% of your VantageScore. While this factor isn’t as important as payment history or credit utilization, creditors like to see that you have a long history of responsible credit use.
What happens when you pay off your credit card in full: Paying your credit card in full doesn’t do anything to your length of credit history other than allowing you to continue to maintain an account. For example, if you didn’t pay your credit card bill, your account might be at risk of charge-off and closure.
When you pay your credit card off in full, don’t make the mistake of closing the account. You might think it would be good to close the account if you’ve been carrying a balance and finally pay it off. However, doing so can shorten your credit history if it’s one of your oldest accounts.
Consider keeping old, paid-off accounts open. If your old credit card accounts have an annual fee, talk to the issuer about downgrading it to a no-annual-fee product so you can maintain the account at no cost.
Credit mix is a lesser credit score factor, only making up 10% of your FICO credit score. Still, it can make a difference if you’re trying to get to the next credit tier.
Your credit mix is the various types of accounts you have on your credit history. For example, lenders like to see a mix of credit cards and installment loans so you can demonstrate responsible use of various types of credit.
What happens when you pay off your credit card in full: Paying your credit card in full doesn’t change your credit mix. However, it can help you keep your account in good standing, so it’s still a positive entry on your credit report. Paying your credit card bill on time could help you qualify for an installment loan such as a personal loan, mortgage, or auto loan that can add to your credit mix.
Like credit mix, new credit is a lesser credit score factor that only makes up 10% of your FICO credit score and 11% of your VantageScore. But it still matters because opening too many new accounts quickly could be a red flag to lenders.
What happens when you pay off your credit card in full: As long as you’re not opening a new credit card account after you pay off your credit card in full, new credit isn’t affected by credit card payments.
Paying Off Credit Cards: What Happens to Your Credit
How much your credit score will increase after paying off your credit card depends on several factors. You could see your credit score increase by 10 to 50 points after you pay off credit cards, though your score could drop if you close accounts after paying them off.
First, consider your overall credit utilization. If you’re carrying a balance close to your credit limit on your only credit card account and you pay it off in full, you could see significant credit score improvement because it takes a lot of pressure off your credit utilization. But if you’re only using 30% or less of your credit limit on your card and have other cards with little to no utilization, you won’t see much difference in your score since you’re already doing well with that credit score factor.
Let’s say you have a couple of credit cards with balances, but 1, in particular, has a high balance relative to your credit limit and a high interest rate. If you pay off that account first, you’ll see the most improvement to your credit score (and save the most on interest).
Also, consider the timing of your payments. Sure, you can pay off your credit card, but if you’re doing it after months or years of late payments, you can’t expect a single on-time payment for the full balance to erase a series of mistakes. Once you’ve paid off your credit card bill, focus on paying your bills on time so you have a long history of on-time payments each month.
If you plan to close the account after you pay it off, you could hurt your credit score rather than help it. When you close an old credit card account, it can negatively affect your credit score. For one, it reduces the amount of available credit you have. And if you’re closing one of your oldest accounts, it can shorten the length of your credit history.
It’s best to keep old credit card accounts open, even if you’re paying them off and don’t plan to use them anymore. You can downgrade to a no-annual-fee option, lock the card, and log in once a month to ensure there aren’t any new charges.Hot Tip:
Read our explainer on why your credit score can drop after paying off debt to understand how closing accounts can hurt your credit score.
How Long After Paying off Credit Cards Does Your Credit Improve?
You should see the effects of paying off credit cards reflected on your credit score within a month or so. Generally, you should expect a change within 30 to 45 days.
The exact timing depends on when your statement billing cycles close and when credit card companies report to the credit bureaus. Let’s say you pay off your credit card bill in full right after your statement cycle closes. You’ll need to wait until the next statement for the credit card company to send your updated balance to the credit bureaus and see an effect on your credit score. If you pay off your balance right before your statement closes, you could see improvement within a week or so when it hits your credit report.
Still, paying off credit cards is one of the fastest ways to improve your credit score. While payment history and length of credit can take years to establish, credit utilization is much more fluid, and it depends on your balances month to month. That’s why you may see your credit score dip when you’re spending a lot on your credit cards relative to your credit limit, and you may see your credit score improve if your balances are lower.
Once you’ve improved your credit score by paying off a credit card in full, keep the good momentum going with positive financial habits that can give you sustained credit score improvement.
Best Practices for Credit Score Improvement
Paying off a credit card bill in full can improve your credit score, but it’s just a single action. You’ll need to do more than pay off a credit card bill once for a great credit score.
Creditors prefer to see a long history of on-time payments and low credit utilization. Paying your credit card bill is a good step, but you must keep making payments on time and using credit responsibly to see real credit score improvement.
Use these best practices to improve your credit score over time:
- Pay your bills on time — not just once, but every month.
- Pay more than your credit card’s minimum payment, ideally the full balance, each month.
- Pay off debt; don’t just move it around with balance transfers.
- Maintain a good mix of accounts, including credit cards and loans.
- Don’t close old credit cards.
- Avoid applying for an overabundance of new credit.
- Regularly check your credit report so you can identify and correct inaccuracies or spot trouble early on.
Making a plan for paying off credit cards before you spend can help you stay on top of payments. It’s also a good idea to lock cards you don’t plan to use. Set up account tools such as balance alerts and automatic minimum payments to stay on top of your credit card account status and payments.
Paying off your credit card bill in full can help you jumpstart the improvement of your credit score. It influences positive credit score factors, particularly payment history and credit utilization, and can save you money on interest. If you’ve paid off your credit card or plan to do so, plan for continued healthy credit habits, including paying all your bills on time, ideally in full, each month.
Featured Image Credit: bnenin via Adobe Stock
Frequently Asked Questions
Should I pay off my credit card in full or leave a small balance?
It’s always better to pay off your credit card in full. When you do that, you can avoid paying interest charges, which apply to any balance you carry. It is not necessary to leave a small balance to maintain good credit.
Credit cards report your statement closing balance to credit bureaus, which is the balance before you make your monthly payment on time. If you carry a balance to the next month, that does nothing but add to your balance for the next month — and you’ll have to pay interest on it.
What happens if I don't pay off my credit card in full?
When you don’t pay off your credit card bill in full, interest charges will apply to your remaining balance unless you have a 0% introductory rate.
Making a minimum payment is a good way to avoid late fees, but you’ll still pay interest on the unpaid amount. If you fail to make a minimum payment by your card’s statement due date, you’ll have to pay late and other penalty fees and interest charges. The longer your payment is late, the more your account is in jeopardy and may be subject to account closure and negative credit reporting.
Does it hurt my credit if I max out my credit card but pay off the full balance?
Yes, maxing out your credit card can hurt your credit score even if you pay off your full balance by the statement due date. Your credit card company will report your statement closing balance to the credit bureaus. If it’s close to your credit limit, that will reflect as a high credit utilization that can hurt your credit score — even if you pay it off that month.
If you need to use large amounts of your available credit, it’s a good idea to ask for a credit limit increase so you’re not using as high of a percentage of your credit limit. You also have the option to pay your credit card bill in full or in part before the statement date. When you do that, the statement balance reported to the credit bureaus is the lower amount after you’ve made your payment.
If I pay off a closed credit card how much will my score increase?
Paying off and then closing a credit card may not increase your credit score but could decrease it. While making on-time payments can help your credit score, closing an account can hurt your credit history by lowering your available credit and shortening the length of your credit history.
How does using your credit card increase your score?
Using your credit card responsibly can increase your credit score because it allows you to demonstrate responsible credit use. You can build a positive payment history when you use your credit card and pay it off each month. And using 30% or less of your credit limit can give you a good credit utilization, another major factor in your credit score.
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