Published March 08, 2013
Dear To Her Credit,
My question is, if I owe $3,500 in credit card bills and pay them all off in one month, would that affect my credit score? Or is it better instead to make big monthly payments?
Before you think about what is good for your credit, think about what is good for your total financial picture. Paying high interest rates for one day longer than you have to is definitely not good for you in any way. If you can afford to pay your credit card bills off without jeopardizing your basic needs, emergency fund or other bills, do it.
Paying the cards off should actually improve your credit score, as long as you keep the accounts open. That's because your credit card utilization -- the relationship between how much you owe and your available credit -- will go down. Say your available credit right now is $7,000. With $3,500 in outstanding balances, you have a 50% utilization rate ($7,000 divided by $3,500 equals 50%). You pay it off, and your credit card utilization is now zero. That can only help your score.
Some people mistakenly think that paying off a card more slowly helps them show a pattern of responsible repayment. However, you can show just as much responsibility making a small purchase, such as a tankful of gas, on a card once in a while and then paying it off before the grace period is up. That way you've responsibly handled credit, and it hasn't cost you anything.
So paying off your cards won't hurt your credit. More importantly, what will it do for you?
It's hard to think of any downsides to paying off your debt. Getting out of consumer debt, and staying out of it for good, could change your life!