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Pay off debt = lower credit score?


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I am able to pay off my credit card, car and student loan (everything except my mortgage.)

I have read that paying off most of your debt lowers your credit score. (Something about if you don't have to make payments then you can't show you make payments on time.)

It has taken me years to get my 844, so of course I don't want it to drop. But I don't think I'm up for paying interest just to keep my score high.

Also, if I pay my accounts in full, and use a credit card and carry a balance in the future, will my score lower more because the balance of what I owe has increased? 

Thoughts, please.

Thank you.

 

 

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If your credit cards all report with $0 balance, it will appear to the FICO algorithms that you aren't using your revolving credit, which makes scoring how you manage your revolving accounts impossible.  This is negatively reflected in your score as a result.

 

But that absolutely, 100%, unequivocally does NOT mean that you need to revolve balances, "make payments," and pay interest.

 

Just use your credit cards normally for routine purchases, and allow at least one card per month to report a balance.  Then, just pay the balance in full before the due date and: 1- You've paid no interest, and 2- FICO has revolving account activity to score.

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Concurring with CV.  All Zero Except One (AZEO) does NOT mean you have to pay interest.  In fact, if one is paying interest on a regular basis, there are many who would opine you aren't doing cards correctly.  Paying interest negates the rewards, although admittedly, those who pay interest help to subsidize the rewards many of us are maximizing. 

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18 hours ago, pinkonlypink said:

I am able to pay off my credit card, car and student loan (everything except my mortgage.)

I have read that paying off most of your debt lowers your credit score. (Something about if you don't have to make payments then you can't show you make payments on time.)

It has taken me years to get my 844, so of course I don't want it to drop. But I don't think I'm up for paying interest just to keep my score high.

Also, if I pay my accounts in full, and use a credit card and carry a balance in the future, will my score lower more because the balance of what I owe has increased? 

Thoughts, please.

 

 

On a month-to-month basis, I don't pay my revolving balances in advance of statement cut.  And I currently revolve about $20k in 0%/low APR balance transfers.  A recent credit report shows me carrying $33k in revolving balances (4% utilization), with a 842 FICO 8.

 

I PIF all balances each month by the due date, other than the 0% accounts), and don't pay any monthly finance charges aside from those assessed at promo rates.

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Thanks for the input!

So it's cool to pay off the card with the balance and just keep using one and paying it in full?

I kind of misspoke: I'm not actually paying interest as my only credit card with a balance has 0% interest until October 2021. 

The card I use, I pay in full each month. I use that card because it has the lowest limit and they keep telling me they won't increase the limit because I don't use the card enough. 

Maybe this is the time to apply for a card with "rewards"?  (What exactly are rewards?)

Thanks again. 

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8 hours ago, pinkonlypink said:

Thanks for the input!

So it's cool to pay off the card with the balance and just keep using one and paying it in full?

I kind of misspoke: I'm not actually paying interest as my only credit card with a balance has 0% interest until October 2021. 

The card I use, I pay in full each month. I use that card because it has the lowest limit and they keep telling me they won't increase the limit because I don't use the card enough. 

Maybe this is the time to apply for a card with "rewards"?  (What exactly are rewards?)

Thanks again. 

Most cards report your statement balance, so yes, just use/wait for statement to close/pay in full by the due date.  There is a stubborn misconception out there that you have to pay interest to have a great credit score; I was trying to dispel that myth for anyone who happens on this thread in the future and may have that question.  :) 

 

Rewards vary from cash back to travel points that can be used with various airline, hotel, and other types of loyalty programs.  

 

Whatever you do, don't settle for less than 2% cash back on everything you buy.

 

 

There are numerous ways to achieve better than 2% for much/most of your spending, but it generally involves using different cards for different types of purchases.  

 

Some months I spread my purchases across 15 or more cards to maximize various rewards and benefits, but not everyone has the appetite to keep track of all of that...  

 

But at the same time, it doesn't take 15 cards to do better than 2%.  You can start by looking at your total spending and then choosing 1-2 cards that cover your biggest spending categories (groceries? travel? restaurants?), get 3-5% back on each of those, and then put everything else on your 2% card.  

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Nothing says you need to limit your use to just one card each cycle.  You can use the card and just be sure it is zeroed out before the statement cuts and still reap the rewards for the card.  It can sometimes take a few cycles to sort out specific windows to ensure it is zeroed, but this is one more place a basic spreadsheet can be helpful ;)

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  • 1 month later...

I will ask the same question, with specifics...and avoid a whole new topic.

 

I have a chance to pay off $125k of revolving debt (underemployed for 3 years....don't ask...).  Would it be better to pay everything down to say, $1k, then start to pay everything off each month as mentioned above?  It's going to feel REALLY good to click Pay in Full on a bunch of cards...but want to be smart about it.

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If you are paying interest your priority should be to pay those cards off ASAP in full.  Money in your pocket is far superior than worrying about trying to maximize a few points of FICO score, UNLESS you are planning to get a mortgage in the next ~60 days and are close to qualifying for a better rate (say your middle FICO is 737 and there is a rate decrease at 740).  Since that is likely <1% of the cases, you should worry most about saving money.

 

Pay off the cards in full.  Then use them responsibly and just let the balances report and pay the bill in full every month (assuming your monthly usage keeps your utilization <10%, if not get CLIs or some new cards to help lower it).  All the nonsense about paying off every card except one blah blah blah is all useless.  There will be no difference in pricing or availability of credit if your FICO score is 800, 820, 840 or 850.  There will be a difference in your bank account if you revolve a balance and pay interest trying to chase a meaningless goal.

 

As HD pointed out, he has $33k in balances at a 4% utilization and an 842 FICO.

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3 hours ago, CTSoxFan said:

If you are paying interest your priority should be to pay those cards off ASAP in full.  Money in your pocket is far superior than worrying about trying to maximize a few points of FICO score, UNLESS you are planning to get a mortgage in the next ~60 days and are close to qualifying for a better rate (say your middle FICO is 737 and there is a rate decrease at 740).  Since that is likely <1% of the cases, you should worry most about saving money.

 

 

That will actually be the case here.  I am at high utilization #'s, which has pulled my scores down from 730's to the mid 690's lower 700's.  Once I pay off, I am coming out of forbearance with my mortgage and will look to refi.

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5 hours ago, txdad said:

 

That will actually be the case here.  I am at high utilization #'s, which has pulled my scores down from 730's to the mid 690's lower 700's.  Once I pay off, I am coming out of forbearance with my mortgage and will look to refi.

Well I would get them paid off and see where your scores go...then if you need to squeak out a few more points try to maximize utilization by getting it around 1%.

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