Does Paying Off Credit Cards Help Your Credit Score?

If you are trying to improve your credit score, you may have heard a lot of conflicting information regarding the right steps to take for good results. Should you pay off your debts in full if you are able, or is it better to establish and follow a smart plan of incremental payments? And of course, does paying off credit cards increase credit score?

In this article, we will explore the options available for reducing and/or eliminating credit card debt and improving your credit score. Read on to learn more.

Debt Free May Not Be The Best Thing For Your Credit Score

Being debt free is an excellent thing for your personal well-being and peace of mind, but it may actually cause your credit score to worsen. The reason for this is that ongoing light-to-moderate activity on your credit cards and other accounts keeps your credit rating alive.

The credit reporting agencies need fresh information to work with. If you pay everything off and never run up any more debt, your credit rating will gradually dwindle.

If you are fortunate enough to pay off all your debts and never need credit again, you shouldn’t let a poor credit rating worry you too much!

If you do want to keep your credit rating alive and thriving, it’s smart to make occasional manageable purchases with your credit cards and make timely payments.

Paying your household bills on time and taking advantage of truly excellent loan opportunities for necessary purchases such as vehicles, home furnishings and improvements and the like will help keep your credit rating impressively healthy.

Is It Worthwhile To Take Steps To Keep Your Credit Rating Alive If You Don’t Need Credit?

There are some advantages to buying on credit. For example, some credit cards offer valuable buyer protections along with attractive perks and bonuses and opportunities to make special, exclusive purchases. Many cards also offer valuable travel services and other extras that make credit card purchases preferable to cash purchases.

​Another thing to consider is that, even if you do not need credit now, you can never tell what the future may bring. An emergency, accident or joyous event may pop up unexpectedly causing you unplanned-for expense.

Having a healthy credit rating can mean the difference between handling the unexpected with ease and being thrown for a loop.

You don’t have to go deeply into debt to build and maintain an optimum credit rating. Generally speaking, utilizing 30% or less of your overall available credit and managing that utilization well is key in generating a positive credit rating.

It’s smart to decide in advance how you will use your available credit, make a plan and then follow it closely. Avoiding impulsive use of credit will help you avoid excessive debt.

​How Can High Credit Card Balances Be Used To Improve Your Credit Score?

Using your available credit to improve your credit rating is easy if you really are independently wealthy and not in need of credit, but what can you do if you are struggling to keep your head above water and your credit cards are maxed out?

It may seem impossible, but with a good measure of planning, persistence and tenacity you can use your high-balance credit cards to improve your credit rating.

Here are four positive, measurable steps you can take:

​1. Focus on getting your debt-to-credit ratio down to 30% as mentioned above.

To reduce your debt and improve your credit rating, you want to get to a point where you are using a little less than 30% of your available credit.

2. Examine your credit card balances and put your focus on the cards that have the highest percentage of credit utilized.

These may not be the ones with the highest balances. Naturally, you must continue making timely payments on all your credit accounts, but focus on the ones that are closest to being maxed out. Pay those down with an eye to getting a more favorable debt-to-credit ratio.

​3. Reduce your overall indebtedness by using the “snowball” method.

Once you have made some significant adjustments to your debt-to-credit ratio, you may wish to pay off some of your lower balances quickly and then add the money you have been using to pay those low balances to your payments on high balance cards.

In this way, you can reduce your debt overall and pick and choose which cards you want to keep active in order to build a positive credit rating.

4. Balance transfers.

In getting your debt manageable, you may want to transfer balances from a high credit card interest card to a low or 0% card; however, this is not a step that should be taken frivolously.

Just shifting your debt around doesn’t help your credit rating and can hurt it. Only do this if you really stand to save a significant amount of money by doing so.

​How Long Does It Take To Build A Good Credit Score?

This is really a subjective question. A great deal depends on your current situation, your past actions and how consistently you are able to take positive, measurable steps to set your financial house in order.

One thing is certain, if you follow the suggestions presented here in a steady, ongoing manner your credit rating will improve bit-by-bit.

Remember that if you do pay off all your debt, your credit rating may actually go down. You will need to weigh the importance of that number against the importance of your own peace of mind and sense of well-being.

If you feel you can successfully maintain small balances on a few accounts in order to stimulate your credit scores, you should do so.

​Whatever you do, remember to follow these smart financial practices:

  • Keep tabs on your credit reports to be sure all information contained therein is correct.
  • Pay all of your bills in a timely and regular manner.
  • Never exceed 30% use of your available credit.
  • Don't apply for new credit needlessly.

​When you follow these tips, your credit scores will naturally rise. More importantly, you will be practicing smart money management that will allow you to get the most value from the resources you have at your disposal.