Keeping Score

Will my credit score improve if I pay off maxed-out cards within a year?

Keeping Score with Steve Bucci

Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.

Ask Steve a question, or see if your question has already been answered in the Keeping Score answer archive.

Will my credit score improve if I pay off my maxed-out cards over six to nine months? 

It’s OK to stretch out payments if you have favorable terms, such as 0 percent interest. But you’re trading your good score for dollars. It’s not a bad trade unless you need an excellent credit score for a new home or a car in the near future.

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Dear Keeping Score,

I have six different credit cards. Two of them are maxed out and one of them is 50 percent maxed. The two that are fully maxed out I expect to have paid in full within six months. But as they are currently, my credit utilization ratio is at 70 percent. What I need to know is, if I leave them as is (the two that are maxed out have a 0 percent interest rate for 12 months) and pay them off within six to nine months, will my credit resolve and go back to excellent after processing for a month? Or, will I still be negatively impacted by having such a high ratio over those six to nine months? -Dan

Dear Dan,

The beauty of the credit scoring system is that it is in an almost constant state of checking, updating and recalculating. You can check your score one day and, just a few days later, check it again and it may have changed. Most of this depends on when your lenders report to the credit bureaus. This is generally done once a month, but they may not all report at the same time.

This means that yes, once you do pay off your cards, you will likely see a pretty dramatic change in your score. I would caution you, though, that it will take longer than just a month to “resolve and go back to excellent,” as you say.

Let’s talk a bit about credit utilization. First, it counts for 30 percent of your FICO score. It is the amount of credit you have been extended versus the amount of credit you have used. You say you have six cards (for the purposes of simplicity, I am going to assume they all have the same credit limits), including one that is at 50 percent utilization and two that are maxed out.

See related: 5 mistakes to avoid after paying off credit card debt

What about the other three cards? The amount of credit available on those three cards (and the amount used) will also factor into your score. Assuming those cards are not at 50 percent or higher, they should be adding points to your credit score. The credit available to you on those cards will count in your credit utilization calculation as well. Remember, this is an aggregate amount and all credit and debts count.

This is one reason why, from a credit scoring point of view, it is a good idea to not close out cards, even if you don’t use them much. The available credit on your no balance cards is a positive factor for your credit score. For my readers who have cards they don’t use and are thinking of closing, I suggest that you keep the accounts active. You will have the benefit of the available credit, in addition to good credit history. Both will have a positive impact on your score.


Tip: What will closing a new and unactivated card do to your credit score? Your score should revert back to what it was before you applied for the new card, minus the points lost due to the initial hard inquiry. 

Dan, you have great terms and I don’t blame you for choosing to stretch those payments out over the time you have left. But there is no free lunch here. You’re trading your good score for dollars. It’s not a bad trade, however, unless you need that excellent score for a large purchase such as a home or car in the near future.

See related:Will closing a card with a remaining balance hurt my credit?

Be very sure that you get them paid in full before the terms expire. Some zero interest offers, such as deferred interest deals, will charge you interest retroactively if you don’t meet the terms, and you don’t want that to happen. I once lost track of a termination date and got hit with more than $1,000 in back interest. It took some fancy footwork to get that rescinded!

In the short term, you need to work on the card that is at 50 percent and work aggressively to get it paid down as soon as you can. This will work to your scoring benefit as well, since it will increase your available credit, thereby reducing your utilization.

My hope is that at the end of this six-to-nine month cycle you will find yourself virtually debt-free, with six credit cards that are being paid in full each and every month. Your credit score will improve each month, and by this time next year you should once again be the proud owner of an excellent score.

Remember to keep track of your score! 

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Published: July 26, 2018

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Credit Card Rate Report Updated: September 11th, 2019
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