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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. As you might expect, it will affect your credit score.
Whether you are chipping away at a balance or eliminating it with one payment, your score will likely go up.
Here’s how various credit card payoff scenarios are likely to play out.
Will paying off credit cards help my credit score?
Yes, you’re likely to see a score bump after paying off cards. That’s because credit utilization, or how much of your credit limits you’re using, is one of the biggest factors in credit scoring. Using less of your credit limit is better for your score.
Why your score could temporarily take a dip
There are some cases where your score could drop after paying off a card, particularly if you close the card. It could lower your available credit limit and lead to a higher credit utilization ratio, which dings scores. But the damage is usually minor and your score should recover quickly. It takes about a month or so for score changes to take effect.
Should I carry a balance or pay my card 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 — because having a high credit utilization will harm your scores. (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 effect that paying off a card will have on your score depends on how much credit you're using. 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. The way you pay off the balance also makes a difference.
- Paying off the full balance: If your credit utilization drops significantly because you wiped out 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.
How to maintain your credit score after paying off a card
Once you whittle down your credit card balances and see an improved credit profile, you likely want to maintain that progress.
Don’t close accounts
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.
Lower your credit 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.
Stay on top of your progress
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% utilization guidance in mind. Don’t use more than 30% of your available credit on any card at any time during the month. Most major card issuers allow you to set up alerts to let you know when you are nearing a limit you choose.
- Apply only for credit you actually need. Make sure to go after the best credit card for your individual score and financial needs. But first, learn how applying for a new card can impact your score.
- Check your free credit reports regularly for accuracy. If you spot an error, dispute it with the credit bureau reporting it.
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