Table of Contents
Does paying off credit cards help credit?
Yes, paying off your credit cards in full can raise your credit score by lowering your credit utilization rate.
Credit utilization is the percentage of your available credit that you’re currently using. This is one of the most important factors in your credit score, accounting for 30% of your FICO score. 1 To keep your credit utilization rate low, you want a high credit limit and a low outstanding balance.
VantageScore recommends keeping your utilization rate in the single digits, and on average, consumers with very high FICO scores have utilization rates of around 6%. 2
Credit utilization examples
Here are some examples of different credit utilization rates and how they’re calculated:
| Total Available Credit | Outstanding Balance | Calculation | Credit Utilization Rate | |
|---|---|---|---|---|
| Steve | $10,000 | $5,000 | 5,000 / 10,000 | 50% |
| Rebecca | $10,000 | $2,000 | 2,000 / 10,000 | 20% |
| Jordan | $5,000 | $2,000 | 2,000 / 5,000 | 40% |
Even though Rebecca has the best credit utilization rate in these examples, paying off $1,400 of her outstanding balance would bring her credit utilization down to the coveted 6%, thus raising her credit score even more.
Can paying off a credit card hurt credit?
Some believe that keeping a very low utilization rate is better than keeping a 0% utilization rate, as it shows they’re actively using their credit cards in a responsible way. 3
To take advantage of this, people carry a small balance on one credit card and a zero balance on all of their other cards. This is known as the All Zero Except One (AZEO) method. While it’s possible this is an effective strategy to maximize your score, neither FICO or VantageScore has confirmed the validity of this practice.
Furthermore, the difference between a single-digit utilization rate and a 0% rate is probably very small. It’s better to pay your credit cards in full, or as much as you can afford, every month to keep your utilization rate low and raise your credit score.
How much will my credit score go up after paying off my credit cards?
Paying off your credit card primarily affects your credit utilization rate, which counts toward 30% of your FICO score and 20% of your VantageScore. 4 Given this weight, paying your credit card can have a maximum impact on 20-30% of your credit score.
However, how much your credit score will increase depends on how high your credit utilization rate was originally. If it was relatively high, paying off your accounts and lowering your utilization rate will have a bigger impact on your score. On the other hand, if your utilization rate was already in the single digits, it’s possible that paying off your cards will have relatively little effect.
How long does it take for my credit score to go up after paying off my credit cards?
Generally speaking, your credit score can see changes every 30-45 days. FICO and VantageScore use the information in your credit report to calculate your credit score, so how quickly your score goes up depends on when your credit card issuers report your new balance to the credit bureaus.
How often a credit card issuer will report to the credit bureaus depends on the length of the billing cycle, but they’ll usually report your balance once every 30 to 45 days, typically on the statement closing date. 5 The reporting date will likely vary across all your credit cards, so your credit score will probably go up gradually rather than all at once.
How else can I improve my credit score?
Paying off your credit cards every month is the most important part of achieving and maintaining good credit. But if you really want to reach for that perfect 850 and improve your credit score even further, follow these tips:
- Consolidate your debts: If your credit score isn’t as high as you’d like it to be, there’s a good chance unresolved debt is the main culprit. A great way to tackle your outstanding balance is to consolidate debt. By consolidating your debt, you’re making payments easier to manage and lowering your interest rate.
- Avoid canceling cards: Once you’ve paid off your credit card in full you may be tempted to cancel the card to avoid annual fees or overspending. But canceling a line of credit will raise your credit utilization ratio by lowering your overall available credit. Unless your card is costing you a lot in fees, try to stash it away for emergency use only instead of canceling altogether. Even then, how you cancel your credit card matters, so be cautious about closing accounts.
- Increase your credit limit: Keeping your credit utilization low is a critical part of getting a good credit score. To lower your ratio, you can use less credit or have a higher credit limit (ideally, both). Simply contact your lender and ask them to increase your credit card limit.
- Be careful about opening new credit accounts: You may think opening more accounts is a good way to increase your credit limit. However, opening new lines of credit can have negative impacts on your credit score. Lenders will perform a hard inquiry when you apply for an account, which will shave some points off your score. Furthermore, the age of your accounts play a role in your credit score, so try to maintain a good history on your existing credit cards.
- Keep a good credit mix: Account diversity factors into your credit score, so keep a mix of installment accounts (which are loans you pay back in fixed amounts) and revolving accounts (open lines of credit you pay back in accordance with how much you borrow).
