It’s an enormously satisfying feeling when you make the final payment on a long-term credit card balance and finally reduce it to zero but will your great achievement actually improve your credit score? Will paying down your cards now make it easier for you to borrow more substantial sums in the future or are the benefits limited to peace of mind and a more economical lifestyle? Below, we answer these questions and more.
If I Pay Off My Credit Card in Full Will My Credit Go Up?
Let’s start with the good news. Whether you make regular monthly payments to reduce your balance to zero or you do it with one lump sum payment, it will have a positive effect on your credit score, which will naturally make it easier for you to borrow more money in the future. But how much of an effect will it have and how long will it take for you to see this effect in the results of future credit searches? To answer these questions, we need to consider the way in which you plan to pay off your balance and your credit situation as a whole.
- Paying off Your Card in One Go – If you make a lump sum payment that reduces your credit card balance to zero, this is likely to have a positive effect on your credit score that becomes apparent quite quickly. As soon as the major credit bureaus have received details of the payment, they will adjust your credit score accordingly.
- Paying off Your Card Over Time – Whether you take 3 days or 3 years to pay off a credit card balance, the net effect on your credit score will be similar. So don’t be despondent if you cannot afford to pay off the whole balance in one go: you will still enjoy the same benefits in the long term.
- Other Credit Facilities – If you have a number of credit cards, all of which have active balances, the effect of paying one of them off in full will be smaller than if you only held the one card. This is because credit bureaus look at your overall credit utilisation when calculating your score. The lower this figure is, the better your score will be. If, for example, you have four credit cards, all with a limit of £5,000, and you pay one off in full while leaving the other three at their maximum possible balance, your credit utilisation will be 75%, i.e. £15,000 out of a possible £20,000. In this example, paying off the one card is not likely to have a big impact on your credit score.
To summarise, the answer to the question, “If I pay off my credit card in full will my credit go up?” is yes but to ensure that your future credit score is as healthy as possible, it is a good idea to limit your credit utilisation to 30% or less. For more useful tips and suggestions, order The Credit Score Fix workshop now.