Does Paying Off Credit Card Debt Help Your Credit Score?

Is your credit score lower than you’d like? Give it a much-needed boost by paying off your credit cards.
4 minute read | 6/25/19June 25, 2019
Woman holding her credit card and a calculator

In an ideal world, you would use a credit card when you need it and pay off the balance every month. You wouldn’t get hit with interest charges or rack up debt. But every financial situation is different, and not everyone lives in that ideal world.

However, paying off your credit card has benefits beyond eliminating the burden of debt. The notion that carrying a small balance from month to month can boost your credit score is a myth. Instead, it can end up costing you more with unwanted finance charges.

Does paying off credit cards help your credit score?

Yes, very much so. Here’s how.

Your credit utilization makes up 30% of your FICO credit score. The lower your credit utilization — or the amount you owe across all your credit cards — the higher your score. A low credit utilization tells lenders you use credit responsibly and are a good candidate to lend to in the future.

While optimum credit utilization is typically 30% or less, your score can increase the lower it goes. Here’s how to calculate your credit utilization.

How to lower your credit card debt and help your credit score

If you want to make sure your credit score is as high as it can be, consider one of these steps to pay off your credit card debt.

  • Pay it off in one lump sum: If you have the cash on hand, pay off your outstanding credit card debt as soon as possible. Whether it’s in one lump sum or over the course of a few months, you’ll start to see your credit score climb when you make larger payments on your cards.
  • Establish a repayment strategy: If you have many cards you’re carrying a balance on, consider the debt avalanche or debt snowball repayment plans. One tackles your highest-interest debts first, while the other has you pay off the smallest balance first — but both can help you efficiently tackle your debt. Your finances and lifestyle may determine which plan is right for you.
  • Try a balance transfer: Moving your high-interest credit card debt to a 0% APR balance transfer card could give you the chance to pay off your balance without adding more interest. Most 0% offers come with an expiration date, so it’s best to pay off your debt before the no-interest offer expires.

As your credit utilization begins to drop, your score should start to go up.

How long does it take for your score to improve after debt payoff?

It’s hard to predict when you’ll start to see changes in your credit score. Your precise credit history and your current financial habits determine how quickly you may see changes. But starting and maintaining a record of on-time payments every month will show lenders you’re serious about improving your credit health.

Lowering your overall balance in addition to making on-time payments can drastically increase your score. Work on better credit habits, including paying down as much debt as possible every month. Lessen your overall credit usage by making a budget and sticking to it. Within just a few months, it’s likely your score will start to climb.

To track your progress, check your credit score monthly, whether it’s through your bank, credit card issuer, or free sites like Credit Sesame.

4 things to remember after your credit card debt is gone

If you’ve recently paid off your credit card debt, take a moment to celebrate your accomplishment. It’s no easy feat — especially if you’ve felt like you were drowning in it for some time.

As you move forward, be cautious about falling into the credit card debt trap again. Here are some ways to stay on track and live your best debt-free life.

1. Use credit cards wisely

Credit cards are best used when there’s a strategy behind them. If you’re worried about overcharging your cards and falling back into debt, give them a specific purpose.

For example, only use your credit card to pay for groceries or gas. By not charging every purchase to your credit card, you’ll help ensure a manageable bill each month.

2. Pay your monthly bill in full

While this strategy helps keeps your credit utilization low, it also helps you avoid high-interest charges. Big interest fees can cause you to spiral back into credit card debt fast.

Do your best to pay off your balance at the end of your billing period. Lowering your usage can help keep your monthly costs low, too.

3. Keep old cards open

The length of your credit history also impacts your credit score. The longer your history, the better you look to creditors. Closing old credit card accounts can negatively impact your score, since it shortens your average credit history.

Instead of closing old accounts, stash the old card someplace you won’t be tempted to use it. Some credit card issuers may require you to use the card every so often; in those instances, consider using your old card for one small, recurring bill to keep the account active.

4. Don’t max out your plastic

It can be easy to fall back into the overuse of credit cards. Even if you pay off your balance every month, maxing out your credit cards shows lenders you’re not very responsible with money.

Because credit cards report your balance to credit bureaus at different times, your full balance could be reported before you’ve made your payment. That means you could see your score take a huge hit. For this reason, avoid maxing out your cards.

Paying off credit cards is good for your credit score

While using a credit card can help you build healthy credit, so does paying off your debt. Stick to low usage, pay off your balance in full every month, and keep old cards open as long as you can. After a while, you’ll start to see your score climb as your debt balance falls.

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