If you’ve ever googled “Will paying off my credit card improve my credit score?”, there’s no need to keep searching for the answers. We have a full breakdown of how paying off your credit card can improve your score, why your score may drop at first, and more. Let’s talk about it!
Does paying off my credit card improve my credit score?
Getting right to the meat and potatoes here. Will paying off your credit card improve your credit score?
This is because your credit score is based on a few different components, including…
- Your payment history
- How much money you owe (and your utilization, ie. if you owe the max amount of credit that is extended)
- Your credit history length
- Your credit mix (the types of debts you have)
- New credit that you’ve applied for or been approved for
When you pay down your credit cards or pay them off, this lowers the amount that you owe. In return, it improves your score.
Will paying off my credit card in full improve my credit score?
Yes, because it lowers how much you owe overall. And, it will show 0% utilization on your credit score report for that credit card.
Why did my credit score go down when I paid off my credit card?
If you paid off your credit card and then closed the account, your credit score may go down.
This is because you closed the account, not because you paid off the card.
When you close an account, your credit mix and how many accounts you have (and their lengths) are no longer shown. So, your credit score may drop (temporarily!). Keep an eye on it, it should update and increase within a few months.
Will my credit score go back up after paying off a credit card?
Yes, it should. If you pay off the card, it lowers the amount of money you owe. Thus, your credit score is likely to go up.
Does paying off my credit card every month help my credit score?
Yes, although it won’t be every single month. As long as you keep your balance at $0, the credit bureaus will see that you’re paying off your debt on time and not using too much of it.
So, you’ll be able to raise your score by keeping these accounts open and not utilizing the credit too much. And the longer those accounts stay open (and continually showing a $0 balance), the more points you can get on your score.
How much will paying off credit cards improve my credit score?
It’s a great question. Now you know that paying off your credit cards is good for you credit score. But, how much will paying off your credit cards help improve your credit score?
This will all depend on other factors, including…
- how much debt you have,
- how many accounts are open,
- if you have any collection accounts or overdue payments on record, and more.
But many people have noted that their credit score improved anywhere from 10-50 points when paying off their credit cards.
There is this myth going around that if you can get a better credit score if you always keep a balance on your credit card.
Personally, I believe that you should never leave a small balance on your credit card. If and when you can, you should pay off your credit card in full and keep it that way.
Is it better to pay off one credit card or reduce the balances on two?
Another great question!
This can depend on the debt you have and how many credit cards you need to pay off. But usually, paying off one credit card in full is better than reducing multiple balances (…which is a great PR moment for the FREE debt snowball tool that we have here at LifeAndMyFinances! Check it out!).
Your credit utilization is a big portion of your credit score. So as an example, if you pay off a credit card and are using less than 30%, that looks better to the credit bureaus than two cards with 50% credit utilization.
How can I raise my credit score by 50 points fast?
Have a low credit score? Want to raise your credit score by 50 points? How can you do it fast?
Pay off as much debt as you can! Especially revolving credit like credit cards.
By keeping your accounts open, but having low balances (or at $0) and paying on time, you’ll show that you’re worthy of a higher credit score.
Keep in mind that this may take a few months of consistency to see such a big jump in your credit score. But, it is possible to do this in less than a year.
Raising Your Credit Score – How to do it!
Now that you know a few tidbits about your credit score, let’s give you some more tools so you can start raising your credit score!
One of the easiest ways to hurt your credit score is to have overdue, unpaid, or collection balances. When credit bureaus see that you can’t even pay on time, this shows them that you can’t handle the credit that you were given.
If you’ve ever had a late payment, you’ll know that it can significantly impact your score negatively. And, because these payments and history are tracked, this could affect your score for years to come. So if you don’t do anything else, ALWAYS pay your bills on time.
2) Pay Down/Pay Off Your Balances
If you don’t make late payments or have unpaid bills, the next step is to pay down or pay off the current balances that you have.
Paying the minimum on credit cards just allows more interest to pile up and costs you more money in the long run. Plus, the higher your credit utilization, the lower your score.
If you’re tired of being in debt, now is the time to pay down as much as you can, or pay it all off completely. You can do this in a few different ways.
- The first would be via a “debt snowball” — or paying off the smallest balance first and then rolling those payments into other balances.
- The second way is via a “debt avalanche” — or paying off the highest interest debt, and then working down the list.
3) Avoid New Debt When Possible
Yes, your credit score is also affected when you apply for new credit and get a new loan, credit card, debt, etc. And while having a mix of debts isn’t a big hit to your credit score, having too many inquiries and new debts can be.
So, while trying to raise your score, avoid new debt if at all possible. Drive your car a little longer, don’t get any new credit cards, whatever you need to do to avoid any new debt.
Once you’ve raised your score to the level you want it to be, then you can focus on the next steps of applying for new cards, loans, etc.
While this may not affect you, it is important to keep in mind. You should be checking your credit score fairly often. I recommend at least every quarter. But you can also check monthly with sites like Credit Karma (our affiliate link to this wonderful tool!!) and Credit Sesame.
While these sites don’t always display your most accurate score, they do showcase when you have new credit lines, debts, or collection accounts. And, this can help you improve your score if you find inaccuracies.
Basically, if you know you didn’t sign up for new credit (identity theft/fraud), or if you know you paid off a bill (collections/late payments), you can report that line item on your credit report as an inaccuracy.
Once it’s been investigated and you can prove that it’s fake or wrong, it is then taken off your credit report. This can boost your score tremendously, especially if you have multiple inaccuracies.
Will paying off my credit card improve my credit score? We say YES!
AUTHOR Kimberly Studdard
Kim Studdard is a strategy consultant and course launching expert. When she isn't spending time with her daughter and husband, or crying over This Is Us, you'll find her teaching other mompreneurs how to scale their business without scaling their workload.