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Paying off credit card debt is smart, whether you zero out your balance every month or are finally done paying down debt after months or years. And as you might expect, it will affect your credit score.
Whether you are chipping away at a balance or eliminating it with one big payment, your score will likely go up.
Here’s how various credit card payoff scenarios are likely to play out.
Should I carry a balance or pay in full?
Carrying a balance does not help your credit score. There is a persistent myth that paying off your entire balance is a mistake when you are trying to build credit. That’s not true.
It’s best for your wallet and for your score to pay balances in full and on time. Second-best? Pay at least the minimum payment, on time.
If you carry a balance, try to keep it below 30% of your credit limit — and much less is better. That’s because credit utilization — or how much of your credit limit you’re using — is an important factor in calculating your credit score. VantageScore calls this ratio “highly influential,” and FICO says it accounts for about 30% of your score. (You can check to see how much of your credit limits you are using by viewing your free credit score from NerdWallet.)
On the flip side, not using a card at all can lead to the card being canceled for inactivity.
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How much will paying off my credit card benefit my score?
The closer you were to your credit limit(s), the more a paid-off card is likely to lift your score, all other things being equal.
Paying off the full balance: If your credit utilization drops significantly because you repaid your credit card debt, you’ll likely see improvement once the lower balance is reported to the three major credit bureaus.
Paying it off slowly and methodically: Most credit scoring models will also reflect your progress incrementally. You won’t see a huge increase when you finally get that balance to zero.
Paying off one card, but having balances on the others: Your credit utilization is calculated both per-card and overall. While it’s best to pay off all cards every month, you’re headed in the right direction if you eliminate one balance.
As you pay down your credit card balances, your credit utilization ratio improves.
Most major card issuers also allow you to set up alerts to let you know when you are nearing a limit you choose.
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Maintaining the gains
Once you whittle down your credit card balances and see an improved credit profile, you likely want to maintain that progress.
If you are able to manage it, keep paid-off credit cards open and use them occasionally. Closing a card can hurt your score by reducing the average age of your credit accounts and by driving up your utilization.
You can keep utilization low in a couple of ways: A higher score might make you eligible for a higher credit limit. Having a higher limit while keeping your charges about the same will give you lower credit utilization.
But applying for a higher limit sometimes counts as a hard inquiry, which can cause a small, temporary dip in your score, so be strategic.
You can also make multiple payments throughout the month, so your utilization is low no matter when in the billing cycle your card issuer reports to the credit bureaus. If your balance happens to be high when the issuer reports, it can damage your score, even if you pay off cards every month.
Paying attention to basic good credit habits is essential.
Pay your bills on time as much as possible. Payment history is the other major factor in scores, along with utilization. And the higher your score, the more a late payment can damage it.
Keep the 30% guidance in mind. Don’t use more than 30% of your available credit on any card at any time during the month.
Apply only for credit you actually need, and make sure to go after the best credit card for your individual score and financial needs.
Check your free credit reports at least once per year for accuracy. If you spot an error, dispute it with the credit bureau reporting it.
Closing a credit card can impact the length of your credit history when it's no longer included in your credit report. It's a factor that makes up a percentage of your credit scores. And, once it's gone for good, it won't work in your favor.
Consistently paying off your credit card on time every month is one step toward improving your credit scores. However, credit scores are calculated at different times, so if your score is calculated on a day you have a high balance, this could affect your score even if you pay off the balance in full the next day.
If you're close to maxing out your credit cards, your credit score could jump 10 points or more when you pay off credit card balances completely. If you haven't used most of your available credit, you might only gain a few points when you pay off credit card debt. Yes, even if you pay off the cards entirely.
How long after paying off debt will my credit scores change? The three nationwide CRAs generally receive new information from your creditors and lenders every 30 to 45 days. If you've recently paid off a debt, it may take more than a month to see any changes in your credit scores.
Your credit score can take 30 to 60 days to improve after paying off revolving debt. Your score could also drop because of changes to your credit mix and the age of accounts you leave open. Paying off debt and avoiding new credit benefits your financial health enough to outweigh any temporary dips to your credit score.
Collection accounts may affect your credit scores and may stay on your credit reports for up to seven years. Paying off collection accounts can have a lot of benefits, including potentially improving some of your credit scores.
Do you still get points if you pay your credit card early? Yes. If you have a rewards card that earns points based on your spending, those points won't be lost if you pay your credit card bill early.
A FICO® Score of 650 places you within a population of consumers whose credit may be seen as Fair. Your 650 FICO® Score is lower than the average U.S. credit score. Statistically speaking, 28% of consumers with credit scores in the Fair range are likely to become seriously delinquent in the future.
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
If you paid off a credit card and closed the account, in most cases, your credit score likely dropped because your credit utilization ratio increased. A credit card closed in good standing should stay on your credit report for 10 years, so it probably wasn't the immediate cause of the drop.
In general, most debt will fall off of your credit report after seven years, but some types of debt can stay for up to 10 years or even indefinitely. Certain types of debt or derogatory marks, such as tax liens and paid medical debt collections, will not typically show up on your credit report.
If lenders review all the information and determine that you are likely to make your mortgage payments in full and on time, you may be able to get better loan terms. The minimum credit score needed for most mortgages is typically around 620.
A credit score of 900 is not possible, but older scoring models that are no longer used once went up to 900 or higher. The highest possible credit score you can get now is 850.
For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2023, the average FICO® Score☉ in the U.S. reached 715.
The length of time it will take to improve your credit scores depends on your unique financial situation, but you may see a change as soon as 30 to 45 days after you have taken steps to positively impact your credit reports.
You want to make sure your balance is low when the card issuer reports it to the credit bureaus, because that's what is used in calculating your score. A simple way to do that is to pay down the balance before the billing cycle ends or to pay several times throughout the month to always keep your balance low.
Depending on when you pay your credit card bill, it might take days or even weeks before your new, lower balance shows up on your credit report. Any potential credit score impact you might experience from paying off a credit card won't happen until your credit report data updates.
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Introduction: My name is Maia Crooks Jr, I am a homely, joyous, shiny, successful, hilarious, thoughtful, joyous person who loves writing and wants to share my knowledge and understanding with you.
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