On this page
What's next
Earn a high-yield savings rate with JG Wentworth Debt Relief
Does Paying Off Credit Card Debt Improve Your Score?
by
JG Wentworth
•
November 21, 2024
•
4 min
Paying off credit card debt can significantly impact your credit score, but the relationship isn’t always as straightforward as you might think. Let’s take a look at how debt repayment affects your credit score, what to expect when paying off debt, and strategies to maximize the positive impact on your credit profile.
Understanding credit utilization
Credit utilization—the percentage of your available credit that you’re currently using—is one of the most influential factors in your credit score, accounting for approximately 30% of your FICO score. Here’s how paying off debt affects this crucial metric:
Immediate Impact
- Reducing your credit card balances lowers your credit utilization ratio.
- Lower utilization typically results in higher credit scores.
- The ideal credit utilization ratio is below 30%, with some experts recommending keeping it under 10%.
Short-term effects
- Score improvements can begin as soon as credit card companies report the lower balances.
- Most credit card issuers report to credit bureaus monthly.
- Changes typically appear within 30-45 days of payment.
Long-term benefits
- Consistent debt reduction shows responsible credit management.
- Payment history (35% of FICO score) improves with regular payments.
- Length of credit history benefits from maintained accounts.
The payment paradox
Sometimes, paying off credit card debt might not immediately improve your credit score. Here’s why:
Account closure
- Closing a credit card after paying it off can increase overall utilization.
- Reduces available credit, potentially hurting your credit mix.
- May shorten length of credit history.
Credit mix impact
- Having some revolving credit can be positive.
- Zero credit card utilization isn’t necessarily better than low utilization.
- Diversity in credit types can benefit your score.
Strategies for maximum credit score impact
It goes without saying that the entire point of paying off credit card debt is to improve your score. Here are a few ways you can optimize your repayment:
- Keep accounts open after paying them off.
- Maintain small, manageable balances.
- Make all payments on time.
- Monitor credit reports regularly.
- Keep utilization below 30% on each card.
- Consider the timing of payments relative to statement dates.
- Request credit limit increases when appropriate.
Impact on different credit score models
Keep in mind these variables when it comes to paying off your credit debt:
- FICO Score changes may differ from VantageScore.
- Industry-specific scores might react differently.
- Lenders may use various scoring models.
Maintaining good credit after debt payoff
Once you pay off your credit card debt, you’ll want to consider these suggestions in order to keep your score healthy:
- Keep old accounts active with small purchases.
- Pay balances in full monthly.
- Monitor credit reports quarterly.
- Avoid applying for new credit unnecessarily.
- Consider a balanced credit mix.
- Maintain emergency savings to avoid future debt.
- Develop a sustainable budget.
Take your next step towards being debt-free
"*" indicates required fields
Common misconceptions
Let’s clarify a few things when it comes to credit card debt repayment:
Myth: Carrying a balance improves credit scores.
Reality: Paying in full is best for both finances and credit.
Myth: Closing paid-off cards helps credit.
Reality: Keeping cards open maintains credit history.
The bottom line
Paying off credit card debt typically improves your credit score through reduced credit utilization and demonstrated responsibility in managing credit. However, the impact depends on various factors, including:
- How you pay off the debt.
- Whether you keep accounts open.
- Your overall credit profile.
- The timing of credit bureau reporting.
For the best results, focus on steady debt reduction while maintaining open accounts and responsible credit usage. Remember that credit improvement is a marathon, not a sprint, and consistent good habits will yield the best long-term results.
There’s always JG Wentworth…
Do you have $10,000 or more in unsecured debt? If so, there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include:
- One monthly program payment
- We negotiate on your behalf
- Average debt resolution in as little as 48-60 months
- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
About the author
Recommended reading for you
The information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 51% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
JG Wentworth does not pay or assume any debts or provide legal, financial, tax advice, or credit repair services. You should consult with independent professionals for such advice or services. Please consult with a bankruptcy attorney for information on bankruptcy.