There has been a lot of information that’s swirling around on the internet lately, some of it right, some of it wrong, surrounding credit scores. I’m creating this Credit Myths series as a resource for some of the more commonly asked questions about credit scores.
Will paying off a credit card hurt my credit?
Paying off a credit card typically helps your credit score, not hurts it. However, the impact depends on how you manage your credit afterward.
When you pay off a balance, your credit utilization ratio (the amount of credit used compared to your credit limit) decreases. This ratio is a major factor in your credit score, and lower utilization usually results in a higher score.
The confusion often arises if you close the credit card account after paying it off. Closing an account reduces your total available credit, which can raise your utilization ratio if you carry balances on other cards. It can also affect the average age of your credit history, another scoring factor.
To avoid a potential dip in your score:
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Keep the account open, even with a zero balance.
- Sign up for a credit tracker.
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Use the card occasionally and pay it off monthly to keep it active.
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Maintain a low overall utilization ratio across all cards.
Paying off a credit card is financially smart and generally beneficial for your credit score as long as you manage the account wisely after it’s paid off.
If your score is lower than you’d like, you’d probably benefit from a service like this one which lets you keep track of your credit and improve it for you.