Best Way to Pay Off Credit Cards to Improve Credit Score

If you’re like most of us, you probably want to do whatever is possible to improve your credit score since everything from buying a home to leasing a car requires a good credit score. We often get asked what is the best way to pay off credit cards to improve your credit score? We will answer this question in much detail below.

What is the Best Way To Pay Off Credit Cards To Improve Credit Score?

The best way to pay off your credit is to pay off the entire balance on your credit card as quickly as possible and keep the balance as low as possible. Many people believe that leaving a balance on their credit cards helps their credit, but this is not true. Your credit score benefits the most from a low credit card balance.

This is so because your credit utilization accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. Credit utilization refers to the amount of available credit you’re using. The lower your account balances, the less credit you’re utilizing, and the better your credit score will be.

That said, we understand that not everyone can completely pay off their credit card and that’s totally fine. If you cannot pay off your credit card, you should at least make the minimum payment so that you don’t hurt your credit. The minimum payment is the least amount of money that you can pay to keep your credit card account in good standing.

Failing to make the minimum payment on your credit cards will cause significant damage to your credit. This is so because failing to make the minimum payment will result in your account be reported as late to the credit reporting. Having a late payment can cause a significant drop in your credit score.

Should I Pay Off My Credit Card or Leave a Balance?

We often get asked this question and the truth is that leaving a balance on your credit card will not improve your credit score. Your credit score benefits the most from lowering the balance on your credit card. So, the next time you hear someone saying that leaving a balance on your credit card helps your credit, now you know that statement is not true.

This is so because your credit utilization accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. Decreasing your credit utilization refers to lowering the balances on your accounts, the lower the balances, the better your credit score will be.

As a rule of thumb, you always want to keep your credit utilization below 30%. If you exceed or use more than 30% of your available credit, you will notice a drop in your credit score.

For example, if you have 3 credit cards with a total credit limit of $10,000, you should try to avoid leaving a balance of $3,000 or more. If you exceed a $3,000 balance, you will notice a drop in your credit score. So, keep your credit card balances as low as possible to help your credit and avoid a drop in your credit score.

Ideally, you should keep your credit card balances between 5% and 10% of your available credit, and never exceed a 30% credit utilization for the best impact on your credit score.

Making Only the Minimum Payment on Your Credit Card

If you want to improve your credit score, you should pay down your account balances. That said, we understand that not everyone has the cash to pay down their account balances. At a minimum, you should always make the minimum payment on your credit card. Failing to make the full minimum payment will cause significant damage to your credit.

Also, if you fail to pay the minimum payment, your card issuer may charge you late fees, as well as impose a penalty APR rate that will significantly increase the amount of interest that you will pay on your credit card debt.

That said, if you cannot completely pay off your credit cards, you should not stress out too much as the average American carries more than $5,000 of credit card debt. That’s an amount that’s not easy to come up within a short period of time.

That said if you have extra cash and want to improve your credit score by paying off your credit cards, pay off as much as you can afford to pay off.

When paying off your credit cards, you should pay off the credit cards with the highest interest rates first as this will make paying off your credit cards quicker and will save you money in the long run.

CSP Pro Tip: If you only make the minimum payment, it will take you a very long time to pay off your credit card debt. So, always make a payment that exceeds your minimum payment. This will drastically reduce the amount of time it takes to pay off your credit card and this will save you a ton of money in the long run.

How To Pay Off Credit Card Debt?

There are a number of different methods to pay off credit card debt. Here are some of these methods:

  1. Snowball Method – This method involves making all of the minimum payments on your credit cards and paying more than the minimum payment on the credit card with the lowest balance. Once you’ve paid off the credit card with the lowest balance, you should move on to the next credit card with the next lowest balance. Many people choose this method because making progress on paying off debt will motivate you to continue paying down your debt.

  2. Avalanche Method – The avalanche method is similar to the snowball method, but instead of targetting credit cards with the lowest balances, you will first pay off the credit cards that charge the highest interest rates first. This method will save you more money in the long run since you will end up paying less interest. However, some people still choose the snowball method because they feel like their making more progress by completing paying off the credit cards with the lowest account balances.

  3. Debt Consolidation – The third option that you have to pay off your credit card debt is debt consolidation. Debt consolidation involves taking out a personal loan and using those funds to pay off your credit card debt. Debt consolidation can save you a ton of money because the interest rates on personal loans are typically much lower than those charged by credit card companies. That said, you will need to have good credit to use this option as most lenders will not lend you money if you have poor credit. In addition to paying less interest, debt consolidation may be a good option for you because it will leave you with a single payment to make, you will no longer have to worry about paying off several credit cards.

By How Many Points Will Your Credit Score Improve After Paying Off Your Credit Cards?

Paying off your credit cards and lowering the balances on your credit cards can improve your credit score by more than 50 points. However, the improvement you will notice will vary depending on the information in your credit report. Some people may notice a smaller improvement while others may notice a bigger improvement.

That said, if you pay down your credit card balance, please share your experience and let us know by how many points your credit score improved after paying down your credit card balances.

Credit Score Planet Frequently Asked Questions

1. How much will your credit score increase after paying off your credit cards?

the number of points your credit score will increase is different from one person to another depending on the information in your credit report. That said, some people who have paid down their credit cards have noticed an increase of more than 50 points. Your mileage will vary depending on how significant of a reduction in your account balance you’ve made, as well as how you’ve handled other debts.

2. How can I raise my credit score?

You can raise your credit score by performing the following:

  • Making all of your payments on time
  • Reducing the balances on your credit cards and loans
  • Keeping old accounts open
  • Not applying for too many credit cards and loans
  • Periodically checking your credit report and disputing any incorrect information

3. Which credit cards should I pay off first?

You should pay off credit cards with the highest interest rates first to save money. That said, some people prefer paying down credit cards with the lowest balances first because paying off debts gives a sense of accomplishment. That said, choose the method that best suits you.

4. Is it a good idea to pay off your credit cards?

Yes, paying off credit cards is a good idea. So, if you have cash that you’ve set aside and don’t need, you should use it to pay off your credit cards and reduce your account balances.

5. Is it better to pay off your credit card or keep a balance?

Paying off credit cards is better than keeping a balance. This is so because the credit scoring models reward those who have low credit utilization.