Home > Credit Score > Help! I Paid Off My Credit Card & My Credit Score Dropped

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For years, the standard advice by many experts is that you don’t have to carry a balance on your credit cards (and pay interest) to get a good credit score. (I’ve certainly said that more than once.) But a flurry of readers on the Credit.com blog say their experiences show otherwise:

  • I just paid the $39 balance on a credit card, with a limit of $2K. Score dropped 10 points..
  • When I paid off the small balance it dropped to 627, 18 points. It told me “Your credit report shows no recent balances on your revolving account. Your FICO Score was hurt because you are not currently demonstrating active revolving credit management.”
  • I’ve been repairing my credit and finally thought that I would have the score to purchase a home! I recently paid a credit card balance in full before the reporting date and my score dropped! 

What’s going on? Is that advice wrong? 

“Having a zero balance does not cause any negative impact to your score,” says Sarah Davies, senior vice president, Analytics, Product Management and Research with VantageScore.

In fact, when it comes to the VantageScore credit scoring model, “you get the maximum value for having your utilization at zero — for having all that credit available to you,” Davies says. 

And while it’s possible that paying off a credit card will result in a lower FICO score, says Barry Paperno, a credit scoring expert who worked at FICO for many years and now writes for SpeakingofCredit.com, it’s unlikely. There’s only one scenario he can think of where this may occur. And that’s where someone goes from low utilization to no utilization. 

In case you’re unfamiliar with the term “utilization,” credit scoring models will compare the balances reported by your card issuers on your revolving accounts with their credit limits. Consumers with the best credit scores tend to use 10% or less of their available credit. (Another term for this is the “debt usage ratio” and you can see yours with Credit.com’s free credit report summary.) 

Dropping to zero utilization could cause a small drop, he says, because utilization “serves as a proxy for activity,” Paperno says “If you didn’t have any balance on any card, then the model just assumes you haven’t used credit recently.” But it won’t likely be a significant drop, he says. 

Tom Quinn, vice president of myFICO.com observes that while consumers who carry higher levels of debt are generally riskier than those who don’t, “research findings show that people who have a small or low amount of revolving debt being reported relative to their available revolving credit are generally less risky compared to people with no revolving debt being reported. In essence, showing a responsible use of that revolving credit demonstrates a lower credit risk versus not showing any revolving debt use.” 

So depending on which credit scoring model is being used, showing some kind of revolving balance may be helpful, but that still doesn’t mean you have to pay interest. More on that in a moment. 

Cause … or Coincidence? 

The expert consensus is that paying off a credit card shouldn’t tank a consumer’s credit scores. But the consumers sharing their stories are adamant. So what gives? 

First, there is the tricky issue of credit score updates. If you subscribe to a credit monitoring service, you may receive a message alerting you that your balance has gone down, and you may at the same time receive a notice that your credit score has dropped. But even if they are delivered together, it doesn’t always mean the former caused the latter, or that the reason stated accounted entirely for the change. Paperno gives this example: 

You deposited $500 yesterday, then wrote $600 worth of checks and your balance went down by $100. “It’s like saying I deposited $500 and my balance went down by $100. Your net deposit is the balance of several different things,” he says. 

The fact is there are numerous factors that go into credit scores and it’s difficult to pinpoint a single one that fully explains why a score has changed. In fact, when you get into the category of consumers with high credit scores, it can be even more difficult to nail down specific reasons why their scores aren’t higher; after all, they are doing most things right. 

In addition, some changes may not be apparent to the consumer. One commenter who saw his scores drop after he paid off a balance noted that he monitors his credit reports on a monthly basis and insisted “nothing else has changed, nothing added, nothing removed, only a zero balance.” But information may be changing behind the scenes. 

Accounts age, and while that’s usually a good thing, it can sometimes result in a lower score. Balances change. And things you don’t even realize matter may impact your scores. For example: a negative item may become older, and reach a threshold where it has less impact on the score. An inquiry (for a mortgage or car loan, for example) that was previously ignored because it occurred in the past 30 days may now count because it is beyond that window. 

Credit scores are complicated algorithms that weigh hundreds of pieces of information, and while consumers want to know exactly how much a particular action will affect their scores, a definitive answer isn’t always possible. 

Going back to the issue of balances, it can be even more confusing. That’s because the balance reported isn’t necessarily your balance at that moment. Most card issuers report account information once a month, usually shortly after the statement closing date. (And it’s often the balance on the statement closing date that appears on your credit reports. ) 

Even if you pay your balance in full around the due date, your credit report won’t likely list a zero balance unless you time it like our reader did, above, so her payment was received before the balance was reported. And even then, to have an overall debt usage ratio of zero you would have to have a zero balance on all of your cards, which is certainly possible if you avoid using credit cards, but unlikely to happen if you have at least one credit card you use on a regular basis. 

Another thing to consider is the differences among bureaus, which each collect their own information and may use one of dozens of different credit scoring models. “A credit score can also be different based on which CRC (credit reporting company) is used to provide the score and when. This happens because the information reported by the lenders to the CRCs may occur at different times each month,” said VantageScore President and CEO Barrett Burns in an article describing why credit scores change.

Pay Off & Close?

Of course, if you pay off and close a credit card account (or close and then pay off a card), that’s another matter. Closing an account removes the credit limit on that card from the utilization calculation, which can potentially affect your scores by raising your overall debt usage ratio on your remaining open revolving accounts. 

In a sense, monitoring your credit score can be a lot like monitoring your blood pressure. If it’s higher than usual, is that because of the last meal you ate, or the argument you had with your spouse, or because you took your last dose of blood pressure medicine earlier than usual? It may be a combination of all three, or maybe it’s something else you not on your radar. It’s the overall trend that’s important. Are you bringing it down overall? 

The bottom line? Paying your credit cards in full can help you save money in interest and should not hurt your credit scores. But keeping accounts open and active can help your scores. As is often the case, you’ll get the best scores by using credit — as long as you use it wisely.

More on Credit Scores:

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  • Bonnie

    I wonder what paying off a mortgage would do to my credit scores? At least one bureau states NOT having Real Estate payments lowers scores! Anyone out there know about this?

    • http://www.credit.com/ Credit.com Credit Experts

      Bonnie —
      It could indeed, but that’s probably not a reason not to pay off your house. You can have an excellent score, even without a mortgage. You can read more here: Could Paying Off Your Mortgage Hurt Your Credit?

  • Jacquline

    So, I just recently got two credit cards to help build my credit. I paid off the balances before the due date and my score dropped 21 points! The reason given was that I have no installment loans and that “There are no recent balances on your revolving credit accounts.”

    Should I wait until the actual due date to pay my credit cards? Should I leave a balance?

    • http://www.Credit.com/ Gerri Detweiler

      Did you use them after you paid them off? Have you reviewed your actual credit reports? As I mentioned in the article, most issuers report balances as of the statement closing date, not the due date. So as long as there is activity and you pay between the end of the billing cycle and the due date you are fine. But perhaps yours report differently. You may want to get your free annual credit reports to see how yours handle it.

      And one more thing–a 21 pt fluctuation seems large but it may due to a variety of factors. If you are looking at a credit scoring model that runs from 300 – 850, a 21 point drop is only about 3.5%. Frustrating, I know, but perhaps not as huge as it seems unless you’re in the middle of getting a mortgage or something like that. And if the model you are looking at goes higher (say 990) then it’s even less of a drop percentage wise. It could level out in a month or two depending on what is actually behind it.

  • Lucas

    I had the same thing happen as the person below. I have been very diligent about getting my credit back on track. I’ve been doing really well. I just recently paid off all my credit card debt, its was only about $550.00 on one card, and $150.00 on another. I got an alert that my Experian score dropped 21 points. It went from 679 to 658. My Transunion dropped 2 points. I couldn’t believe it. I had been carrying a balance more recently because the card has 0%APR right now, and thought surely I’d jump a couple points. I was super bummed to see that paying off my cards negatively affected my score. I had been under the thought that it was better to carry a balance, but then everything I was reading lately said that wasn’t true. In my experience, its VERY true. Apparently you should always carry a balance to some degree.

  • linda

    I would like to pay off all my credit cards and close my accounts except for one. Does anyone know what can happen to my credit score.

  • Gary Roberts

    Total scam. I had 29% debt to credit ratio on two cards (2600 debt) Score 673 . Paid 500 dollars to balance . Ratio went down to 21% and score went up to 687. I was very excited to pay off for the first time in 15 years that final credit card . Wrote a check for 2100 and waited a month for my score to reflect. Just posted today of a 1% debt to credit ratio and drum roll….. My score dropped to 679. No debt and only six points higher than a balance of 2100. So lesson learned is for me that you are penalized if you don’t have at least 10 to 20 debt to credit ratio !!! sCAM .

  • Pamela

    I have been working diligently to pay off almost $20,000 in credit card debt. In November, I had a 723 Experian credit score (the others were lower, but in the 700’s). In mid December, I paid off all of my balances, and I my Experian score is now 682. It dropped over 40 points. Same thing with Equifax – Transunion is now in the low 700’s. The reason on all three bureaus is “you have too much available credit and now you’re a credit risk”. HA! Would it benefit me to close some of my accounts – which I KNOW can hurt credit? I’ve heard of this happening in the short term, almost like the credit pendulum swinging to extremes. How long can I expect my credit score to reflect a negative score for paying off my credit card debt? BTW, I have a mortgage and a car loan and I have no late payments. How long will it take my credit score to bounce back?

    • Jeanine Skowronski

      Hi, Pamela,

      Typically having available credit not is use helps your scores. You may want to review your reports for any errors or new information to see if something else might be behind the score drop.

      Thanks,

      Jeanine

  • Jeanine Skowronski

    Is your utilization high? You typically want to keep your credit utilization (how much debt you are carrying versus how credit has been extended to you) below at least 30% and ideally 10%.

    Thanks,

    Jeanine

  • BummedAboutDebt

    Our credit score was 795. We decided that we wanted to get rid of all credit card debt so that we could put our extra funds toward a larger home mortgage. We canceled all but 1 card (thought I canceled it but recently realized it is still open), and paid off almost $5,000. My score went from 795 to 703!!!!!!!!! What???? We went from almost perfect credit to ok credit. It’s so sad to be penalized for trying to minimize the amount of credit available to you, and for paying off a huge chunk of what is owed. You would think this would show responsibility. But I guess this is what happens when we try to use mathematical equations to determine the reliability of a human being. Bummer!!

  • Shivette

    I just paid off 6K in CC debt. It was spread over 4 cards. My score dropped 133 points! I don’t even have words or have a clue what to do at this point. I have a car payment (never been late), but I am completely at a loss. How do I even begin to fix this?

  • ASE Automotive

    Same thing for me. I was at 772. I always pay off my credit card and don’t carry a balance but it was reported that I owned 336.00 Next report indicated I owed zero and my score dropped 16 points to 756. I immediately ordered my Transunion Credit Report with score to make sure everything was correct and nothing had changed, which it had not, everything was the same. Transunion reported my Vantage score as being 792. My score dropped by paying off my credit card. I have two and have a total limit of $16,000 and my mortgage is 58K. I don’t have car loans or student loans.
    It’s screwy. If you have a balance, your score goes down. If you pay your balance, your score goes down. Not impressed with scoring model.

  • Amara

    I have a question. Can anyone offer any advice on what I should do?? I have a Capital One $300 credit limit, my minimum payment due is $25, my balance owed is $49. In order for my score to increase, should I pay the min or the full balance owed?

    • Jeanine Skowronski

      Generally, the more of your balance you pay down the better. You want to keep the amount of debt you owe as low as possible, below at least 30% and ideally 10% of your credit limit.

      Thanks,

      Jeanine

      • Amara

        Thank you Jeanine, I’m just afraid that if I pay the entire amount, $49 that my score will drop. I am able to pay the entire balance, just trying to avoid my score dropping.

        • Jeanine Skowronski

          You have more of a chance of your score going up than down when paying off a balance, particularly when it comes to credit cards. And if it does fall, you should be able to rebound relatively quickly if you continue making all of your payments on time.

          Thanks,

          Jeanine

          • Amara

            Got it, thanks so much for your quick response!!

        • A A

          pay the minimum to benefit with a better score.

          It does hurt you
          in the long run (financially) as keeping a balance each month, allows
          banks to charge you the exorbitant interest that could range from
          hundreds each month, to thousands depending on the amount of cards, and
          limits (currently have 86k in credit cards).

          So if you have low limit cards, then keeping that 10% balance should help keep your score high.

          But
          never forgot, the biggest factor is not balance, but payment history.
          Never pay any of your debt late and always pay on time. Even though you
          have 29 days after the due date, to pay your bill.. you run the risk of
          possibly being hit with a 30 day late, if you forget to pay on the 29th
          day. This is why I always advise someone to pay before the (first) due
          date and never pay after. Plus if you pay after the due date, thats
          another way for card companies to hit you with fees $$$$$$. Basically,
          never delay and always PAY!

    • asifalimirza

      Pay your balance, otherwise you will pay interest. It is better to always pay off your balace

  • Brian Brotherton

    Literally all I did was pay off my low owed balance on time on a Capital One card and my credit score dropped 6 points. All I put on that card is the same bills every month, so no change in utilization at all.

  • A A

    Fact: You cant be charged interest on a bill thats always paid in full

    Fact:
    When you dont pay your bill in full and leave a balance when the
    statement closes, the credit card issuer can now charge interest, making
    money off you keeping a balance.

    FICO and credit card issuers
    made sure to include such a scoring factor (its called a mutual benefit), as to force borrowers to
    STOP PAYING IN FULL, so that interest can occur……… and in return, your score also goes up.

    Credit card companies cant make money off lending you money, unless they charge you interest.

    Fico
    could easily instill a system that shows that a borrower who pays in
    full, is always better than the borrower who keeps a balance. After all,
    if use 30% of my card debt, then pay it off in full (effectively
    making it 0% usage), thats enough to show I know how to manage my debt,
    by having enough funds on a monthly basis and paying it all off
    responsibly.

    But the Fico system isnt created that way, because credit card issuers got to Fico and made sure there were penalties for PIF.

    If anyone at Fico tells you differently, laugh in their face, spit in it… and then walk away. Scum bags deserve nothing less

  • asifalimirza

    All I can say is that this is all a big scam

  • http://flakjacketinc.com Michael Clarkson

    I love how experts in credit scoring use weasel words like “may not” and “might”. It shows that even those who know the most about credit don’t actually know anything at all. The credit scam perpetrated by the credit scoring agencies can only be solved if we force them to publish the exact algorithms they use to generate that score. Until then it’s all smoke, mirrors, and BS.

    • Heide Hogan-Mankin

      So very true!! How do… “We the people” do that? Big Government and Big money continue to make the struggle real. #nomoremiddleclass#usgovtoverhaul and #knowledgeispower

  • reaganite88

    I have to laugh at Gerri Detweiler. How do I get her gig? Getting paid to write puff piece articles for the credit agencies?

    There are literally ten people in these comment sections telling her that their scores DROPPED after paying off credit and she and the other “moderators” answer half of them with some variation of “not possible.” Yeah right… because ten people have nothing better to do than to get on the internet to look for a blog post where they can lie about their credit scores going down when they did something they thought would make them go up.

    • Heide Hogan-Mankin

      Make it eleven!!! Debt reduced from 2% to 1% in a 2 week period and score drops from 815 to 814 according to credit.com. NOTHING ELSE HAS CHANGED!! Debt reduction should not EVER cause your score to decrease. A process that should be so clear and easy to understand that is made difficult and vague by a system that controls the success of your “buying power”…and basically anything to do with: Buying a home, Renting a home, Buying a car, Getting a credit card, Your rates on your home and car insurance…Should be a uniform set of rules that does not have variables that the consumer is not aware of. The credit agencies and the lenders do not seem to be interested in fixing this system that makes no sense to the consumer. Which makes it suddenly apparent that this system is not to benefit the people. What to do??? I haven’t a clue but until then…I will remain debt free and take the decreased score. #WHATAJOKE

  • Greg Smittle

    I recently paid off all my debt when I took some money out of my 401k. I paid everything I had which came to 18k and my credit score was hovering around 700, then after paying the dept off, it dropped 20 points 3 days later. Will my credit score go back up if I dont hold any balances?

    • Jeanine Skowronski

      It should rebound over time so long as no new negative information appears on the reports.

      Thanks,

      Jeanine

  • Greg Smittle

    I just finished paying off 18k in debt and now have 0 debt. My credit score went from 697 to 667 in less than a week. What’s the deal, should I start using my credit cards again or should I wait? Will it go up again?

  • Heide Hogan-Mankin

    Working hard to raise that credit score…Raised up. Facts on my situation
    #1. July, 2016- Almost $20,000.00 credit card debt Score 753 (ran by my bank for mortgage) Possibly slightly over my 30% usage. Credit .com score 743
    # 2 Sept 2015 Over half of credit debt paid off but not all lenders had posted balances. Debt usage reduced. Credit .com scores 753.
    #3. Oct 9 2016 More credit cards post paid off balances. Debt reduced to 2% of available credit. Credit .com scores 815.
    #4 Oct 24, 2016 Debt down to $62.00 and overall debt usage reduced to 1%. Credit.com scores 814.
    Absolutely NOTHING else has changed except that I am finally free of credit card debt…Credit scores empower a person to get the best possible interest rate. The factors, the companies and the secret codes that determine that almighty score…need to be more universal, concrete and apparent to the consumer. It really should not be difficult. The process that the consumer has to go through to actively monitor their credit…to make sure it is accurate, or the work that must be done to improve scores is often overwhelming in itself.The three Credit reporting agencies have inconsistent information that determines their companies overall score. As a consumer, This matters! One company may have a negative item on your account while the other two agencies are not reporting the item. The problem is your score is significantly lower with the first credit agency AND it is also the company that a specific lender has just pulled your credit from. Attempting to remove items that are having a negative impact on your score is a very lengthy process…especially if it is a debt involving a “authorized user” on your account. The process of raising ones credit score/repairing ones credit by reducing their debt should be a positive step towards improving their score…In all cases! There should be no secret code! If you have credit and you are debt free…your score should not be affected by going down! A simple process made difficult…WAY TO GO …BIG MONEY AMERICA …#nomoremiddleclass

  • eve

    Credit card just paid off. before Score went down. Experian stayed the same.. Equifax went up 2 points score 671, Experian stayed the same 642 and transunion went from 642 to 627. Go figure.

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