Dear Credit Card Adviser,
If I have a high balance on my credit card and I pay it off, how soon will that change my credit score?
-- Roger
Dear Roger,
The new balance must be on your credit report to have an impact on your credit score since your score is based on your credit record. As soon as the credit reporting agencies update your credit file, your new level of debt will be available for the next calculation of your score.
Credit card issuers usually report once a month, so you may experience a bit of a delay before your credit score reflects the zero balance.
Keep in mind that you won't gain points just from paying off your debt, since your credit report does not say how much of your bill you paid. Your score could change, however, because your balance has decreased. This will improve something called utilization, which is the proportion of available credit you're using on revolving accounts.
Your credit report will reflect the monthly balance as reported by the creditor. So, if you owe $800 on an account with a $1,000 limit, pay it off, and then charge $500 the next month, your utilization would change from 80 percent to 50 percent. Paying in full doesn't make the reported balance zero if you then make new charges the following month. Your credit report reflects your monthly spending, not whether you are carrying a balance.
The good news is that paying off a balance that neared your credit limit eliminates the negative impact the high balance was having on your score. As stated in a previous column, "You could have been maxed out on all your cards last month ... and paid them all off this month, and when you pull your score this month, none of your past balances will have any impact on your current score," says Barry Paperno, consumer operations manager at FICO.
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