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If I Pay Off My Credit Card In Full, Will My Credit Score Go Up? 

Debunking The Myths Costing You Money

Paying off credit card debt is a remarkable feeling, especially when you see the effects it can have on your credit score. Paying off credit card debt will almost always improve your credit profile, and in many cases you’ll see your score go up. But certain things could get in the way of the score increase you’re hoping for. 

Will Paying Off My Credit Card In Full Improve My Credit Score?

Paying off your credit card in full will raise your credit score in most cases. It’s the smartest and most cost-effective move if you use your credit card to cover purchases throughout the month.   

There’s a common myth that carrying a balance and making consistent minimum payments towards it helps you raise your credit score. That’s simply not true!

If you can pay off your balance each month, you should do it. First of all, the balances carried over each month get hit with APR. For credit cardholders in 2021, that’s an average minimum of 16.22% and an average maximum APR of 23.69%

You pay significantly more for your purchase if you only pay the minimum and leave a balance on your card. 

Secondly, paying off your balance lowers your credit utilization rate which makes up 30% of how your score is calculated. Credit bureaus suggest a utilization ratio of 30% or less for a healthy credit score. 

Typically we see that people with the highest credit scores have a balance of 10% or less – so aim for less than 10% if you can.

Knocking out your highest interest rate card works wonders when your card issuer reports it on your credit history. Be sure to keep the card open after paying it off. It makes up part of your credit mix along with personal loans, student loans, secured credit cards, and revolving credit

How Much Will My Credit Score Increase After Paying Off Credit Cards?

Whether you’re making payments on time or falling behind, your payment history gets reported to each credit bureau after the end of every billing cycle. The effect of paying off your credit card balance on your credit will depend on what’s already there – after all, your credit score is designed to show your financial health, and we’re all different. 

You already know your credit utilization ratio, payment history, and length of credit history are big parts of the credit scoring model used to determine your FICO score. These questions might help you determine how big of an impact your debt payoff will have on your score. 

Closing your credit card after paying it off can be detrimental to your credit. Meanwhile, if your outstanding balance on other credit accounts is close to the credit limit you might not see much of a difference in your score. 

If you have good credit and are paying off your card balance in full, you might see a smaller difference in your credit score compared to someone with bad credit.

 If you’ve had bad credit in the past, and have been making on-time monthly payments, paying off your outstanding balance could yield bigger changes in your credit report.

Maybe your credit score isn’t rising as quickly as you’d like it to. There are other options available to improve your credit profile and build credit faster or more effectively. While credit cards are one of the simpler accounts that build credit, they aren’t the only way. You can learn how to build credit without a credit card.

You can also boost your credit by getting a credit builder loan to improve your credit mix if you don’t have any installment loans in your credit profile. 

On average, CreditStrong credit builder account holders saw a 70-point increase in their credit score within the first 12 months. 

How Long After Paying Off Credit Cards Will My Credit Score Improve?

If you’ve paid off your credit card and are currently stalking your credit report for the slightest changes, you might be waiting a while. On average, it can take anywhere from a few weeks to two months for the payoff to be reflected in your credit profile. 

This depends on a few different factors:

  • The date your billing cycle ends
  • The payment date
  • When the card issuer reports the payment to the credit bureaus

Yes, your financial institution will report your payments to each credit bureau every month, but the end of your billing cycle doesn’t always match up with that. The date you make your payment can affect this as well.

For example, if a card issuer reports to the credit bureaus on the 15th of each month, and your payment is made on the 10th, the issuer may tell the bureaus about your progress five days after your payment. However, if your payment is made on the 20th, you could be waiting until the 15th of the following month before your progress is reported. 

Paying off credit card debt before the end of a billing cycle can have added benefits. You could potentially avoid paying additional interest on your final credit card bill. Waiting until the end of your billing cycle to pay can result in residual interest

Residual interest occurs when there’s a gap between the billing date and the date of the payment. You can avoid the extra interest charge by calling your card issuer to ask for the exact payoff amount on the date you expect your check or online payment to clear. 

Is It Better to Pay in Full or Carry a Small Balance?

When you carry a credit card balance, it represents a level of risk when a lender does a credit check to approve any new credit accounts. While a small balance can demonstrate that you’re making use of your available credit responsibly, it still comes at a price. 

Balances carried over at the end of the billing cycle are subject to interest charges. And if the balance is carried over to the next month, the interest gets compounded. 

You should pay in full whenever possible to avoid extra debt. Even small balances are subject to interest which can mean you’re paying a large percentage more than your actual purchase. 

By paying in full each month, you can reap the rewards of having a credit card without the hassle of compounding interest. 

Pro Tip: Speaking of rewards, paying off the balance in full can equate to free money if you manage it properly. By making normal purchases within your budget on a rewards credit card, you can quickly rack up the points, cashback, or travel miles offered.

Paying off the card in full before the interest hits means that the credit card company is giving you those rewards for free. In some cases, credit card companies have even stopped offering certain cards because people were too good at this! 

It’s also wise to reduce the daily average balance on your revolving credit cards since it affects the way the interest is calculated. 

If you make multiple payments throughout the billing cycle or one large debt payment halfway through, you could drop the average balance and effectively decrease the interest charge that you see on your bill for the next billing cycle. 

Don’t give away money in interest that you don’t have to. Make the credit card company pay you instead. Just be careful of your billing cycle dates and don’t make any late payments to avoid extra fees. 

Why Did My Credit Score Go Down When I Paid Off My Credit Card?

Paying off your credit card typically doesn’t lower your credit score. An exception may be if you close your card after paying it off. Closing a card – even if you don’t plan to use it – could be detrimental to your score in the following ways: 

  • It lowers your length of credit history
  • It decreases your available credit
  • If it’s your only credit card, it could disrupt your credit mix

All of these factors are part of the scoring model used to calculate your credit score and can create a temporary decrease. Closing your card can detract from one of the benefits of paying it off. When you keep it open maintain your available credit. 

Closing it, however, decreases your available credit since that credit limit is no longer open to use. Consider trying one of these solutions to avoid a hit to your score before closing a credit card account:

  • Apply for a credit limit increase on another card to offset the decrease in available credit from closing your paid-off card
  • Inquire about balance transfer promotions on your card and use the now available balance to pay off other debt at a lower interest rate
  • Use online banking to freeze your card from use and keep the card somewhere inaccessible

Most people feel compelled to close their cards to avoid racking up debt again after they’ve paid it off. Understandable. But if the credit card account has been open for a long time, closing it can lower your length of credit history which makes up 15% of your credit score!

And if it’s your only credit card, it can detract from your credit mix. Having other accounts such as a car loan or auto loan, mortgage, or other revolving debt can contribute to a healthy credit mix as well. 

But what if you didn’t close your card and your score still went down? Another financial event like applying for new credit may have happened at the same time as paying off your credit card debt. That may have affected your score in an unexpected way. After all, a credit card is just one account and your credit score is designed to take into consideration the totality of your credit profile.

Paying off credit card debt and bringing your credit utilization rate below 10% is an excellent financial move that could save you plenty of money in interest. Make sure to maintain your score with on-time payments and avoid closing your card unless you’ve determined that to be the best decision for you. 

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