Dear CCB,
The lower your credit card balances, the better for your credit scores—so paying off credit card balances is a smart move for anyone looking to increase their scores. That said, there are many other factors that can influence scores, and the information in your credit reports is continuously changing as the credit bureaus receive new updates from your lenders.
Allow Some Time Before Checking Your Score
You should allow at least one billing cycle, or about 30 to 45 days, to pass before checking your credit score after a major change like paying off a large credit card balance. That will give time for the payment to be reported by your card issuer and your credit history to be updated.
A large change may also cause your credit scores to dip a bit for a short time. The reason is that a big change like paying off a large credit card balance creates instability in the score. Check again after a month or two, and, assuming nothing else has changed, your scores will likely bounce back up and begin to improve.
Closing Your Credit Card Account Can Hurt Scores
Your credit utilization rate, or balance-to-limit ratio, is the second most important factor in credit scores next to payment history. Utilization rate is calculated by taking the total of all your credit card balances and dividing that number by the total of all your credit card limits. Paying down or paying off a credit card will result in a lower utilization rate, which can raise your scores. However, one mistake some people make when paying off a credit card is believing that they should close the account once the balance is zero.
When you close a credit card account, you eliminate the available credit for that account. If you are carrying balances on other credit cards, closing the account you just paid off will likely cause your overall credit utilization rate to increase, which is a sign of risk. As a result, your credit scores may decrease.
Sometimes, there are valid reasons for wanting to close an account, even if it results in a temporary decrease in scores. For example, if you are in the process of getting out of debt and leaving the account open represents a temptation to accumulate more debt, closing the account may be a wise choice. Or, if you no longer plan to use the account and it has an annual fee, it may not be worth the cost to keep the account open.
However, if you are planning to make a major credit purchase in the next three to six months, it's probably best to leave the account open until the transaction is complete.
What Factors Impact Credit Scores?
It's possible that the reason for the decrease in your score was entirely unrelated to this particular account. For example, if you recently applied for and opened a new account or paid off an installment loan, those changes may have resulted in a decrease in your credit score. Any late or missed payments reported also have a negative impact on your scores.
The best way to find out what in your credit history is negatively impacting your credit score currently is to order your free credit score from Experian. Along with the score, you will receive a list of the risk factors that are affecting your scores the most at this moment.
If you haven't already done so, it's also a good idea to order a current copy of your credit report and review it carefully so you can see exactly how your accounts are being reported.
Paying attention to the individual risk factors listed with your score will help you gain a better understanding of how the information in your report is seen by your lenders so you can begin improving all your credit scores going forward.
Thanks for asking.
Jennifer White, Consumer Education Specialist
FAQs
You Have Late or Missing Payments
Why is my credit score going down 20 points for no reason? ›
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
Why did my Experian credit score go down? ›
Credit scores can decrease for a number of reasons, including high balances, missed payments and closed accounts. You can review recent factors that may be affecting your credit score by checking your credit score for free with Experian.
Why is there a 20 point difference in my credit scores? ›
When the scores are significantly different across bureaus, it is likely the underlying data in the credit bureaus is different and thus driving that observed score difference.
Why is my credit score going down if I pay everything on time? ›
It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.
Why has my credit score gone down when nothing has changed? ›
Things like new credit applications and missed payments may impact your credit score. You may be able to improve your credit score in a number of ways, including making sure you're on the electoral register, managing accounts well and limiting new credit applications.
Does Experian hurt your credit? ›
When you check your own credit report or request your own credit score, or when a monitoring service you authorize does so, that request is noted on your credit report as a soft inquiry. A soft inquiry never has any impact on your credit scores.
Can I dispute a credit score drop? ›
You have the right to dispute information in your credit report by contacting the credit bureau on whose report the information appears. It's also a good idea to check the other credit bureaus to make sure the same information doesn't also appear on those reports.
Why is Experian so much lower than FICO? ›
Why is my Experian credit score different from FICO? The credit scores you see when you check a service like Experian may differ from the FICO scores a lender sees when checking your credit. That's because the lender may be using a FICO score based on data from a different credit bureau.
Is Experian accurate? ›
Credit scores from the three main bureaus (Experian, Equifax, and TransUnion) are considered accurate. The accuracy of the scores depends on the accuracy of the information provided to them by lenders and creditors. You can check your credit report to ensure the information is accurate.
That's why it's important to understand which credit bureau each bank uses for credit decisions. Every bank uses Equifax, Experian, or TransUnion to evaluate creditworthiness — some even use more than one bureau.
Why did my FICO score drop 25 points? ›
Reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, running up a large credit card balance or closing a credit card.
Why did my credit score drop 20 points for no reason? ›
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.
What is a good Experian credit score? ›
What Is a Good FICO® Score? The base FICO® Scores range from 300 to 850, and a good credit score is between 670 and 739 within that range.
Why does your credit score go down just by checking it? ›
Does a credit check lower your score? Checking your credit score on your own, which is a soft credit check or inquiry, doesn't hurt your credit score. But when a creditor or lender runs a credit check, that's often a hard credit check, which could affect your credit score.
Why is my credit score so low when I have no debt? ›
Various weighted factors mean that even with no credit, your credit score could still be low because the length of your credit history or credit mix, for example, could also be low.
Why did my credit score suddenly drop 100 points? ›
For your credit score to drop 100 points at once, you're most likely talking about being 90 days late or more on a loan or credit card payment you're on the hook for. Believe it or not, a single late payment could cause damage in that ballpark, especially if your credit score is higher to begin with.
What if my credit score drops before closing? ›
Lenders want to recheck your credit score before closing to ensure you qualify for the rate approved during preapproval. As such, a decreased credit score could lead the lender to hike your loan's interest rate or change other terms.
How long does it take to raise your credit score 20 points? ›
There is no set time for how long it will take to see a change in your credit score. You could see a 20-point increase in a month, or it could take longer. Credit scores are updated at least once a month.
