We recently received the following question from a reader about why her credit score would drop after paying off a credit card balance:
A month or so ago I got my credit score. It was 812. Today I received an email saying there was an update to my score so I logged in to see the change. My score is now 800. The only thing different is I paid off one of my credit card balances. Should I keep a balance? This doesn’t make sense why it would go down. Nothing else has changed.
As lenders report updates to the credit reporting agencies and your credit report changes, it’s not uncommon for credit scores to fluctuate a few points from month to month. And for high scorers like yourself, a fluctuation of 12 points is very minor. However, to answer your question — paying off a credit card balance wouldn’t lower your credit score unless you closed the credit card when you paid it off. In fact, paying off (or paying down) a credit card balance would have the opposite effect.
[Credit Score Tool: Get your free credit score and report card from Credit.com]
There are a number of reasons why a credit score would drop: a negative item that wasn’t reported in the past, higher balances on credit cards, new account openings, new inquiries — or a combination of these things. It’s easy to speculate what may have caused a score drop but in the end, the only way to truly know what caused a score to drop is to compare the credit reports used to generate the score for each.
I know you mention that nothing else changed but if your score dropped, something in your credit report changed. The free monthly updates from Credit.com’s Credit Report Card only include changes in your score so unless you ordered a full credit report, it’s impossible to know what caused the 12-point drop. (You can get your credit reports for free once a year from each of the three credit reporting agencies through AnnualCreditReport.com.) Having said this, there are a few other factors at work here that I think may ease your mind and explain the slight drop.
Paying a credit card balance in full doesn’t necessarily mean your credit score will reflect your most recent credit card payment. This is because credit card issuers generally report updates to the credit reporting agencies once every 30 days, typically around the time that your monthly statement drops. For this reason, the balance reported in your credit report would show the balance from your most recent credit card statement. And if your most recent statement balance was higher than the previous month’s statement balance (when your score was 812), it would cause your score to drop. So you’d have to stop using your credit card for at least a month before the balance would be updated and reflect a $0 balance in your credit reports.
[Related Article: Achieving Perfection -- The Highest Credit Score]
In the grand scheme of things, a slight fluctuation isn’t something to be overly concerned with — especially with scores as high as yours. Scores in the 800+ range are golden in the financial world and will get you the best deals that lenders have to offer, which, after all, is one of the best reasons for maintaining great credit.
For more about credit reports, credit card management and improving your credit scores, check out these great resources:
- How Often Does Your Credit Report Change?
- The Ultimate Guide to Credit Scores
- How to Achieve a Perfect Credit Score