Does Paying Off Credit Cards Affect Credit Rating?

The way you pay off a credit card can affect your credit score.

While paying off credit card balances only makes sense financially, what you pay off and how you pay it off can determine the effect on your credit score.

Pay Off

If you pay down or pay off balances on your credit cards, your credit score has no where to go but up. Reducing your debt-to-credit ratio by paying off balances owed on credit cards improves your credit score by demonstrating that you are a responsible borrower.

Balance Transfer/Loan

However, if you pay off your credit cards by transferring balances to low- or no-interest credit cards, or by taking out loans, your credit score could be adversely affected, instead. While you may be paying less interest, you are not actually paying off debt--just moving it.

Closing Accounts

And when you do pay off those credit cards, be careful of closing the accounts--doing so may actually hurt your credit.

"If you have high balances on other cards when you close an account, your utilization could climb and ding your score. As soon as you start to pay down those other balances though, your score should improve," says BankRate's Leslie McFadden.

References

• BankRate: How Does Closing a Credit Card Affect Credit Score
• MSN Money: 7 Fast Fixes for Your Credit Scores

Resources

• 7 Fast Fixes for Your Credit Scores