Editorial Policy

Understanding Your Credit Score’s Ups and Downs

Erica Sandberg

February 27, 2012

QDear Erica,

When I pay off a credit card, how long before this helps my credit score? How about when I cancel a card? I am trying to get my score up by 50 to 75 points as soon as I can. –John

AHi John,

Credit scores are in a constant state of flux; you just can’t depend on them to be a set number any given month. Why so capricious? Because the information on consumer credit reports is constantly changing, and that’s the data they use to come up with the numbers. Essentially, your scores will seesaw with your borrowing and repaying actions.

For example, if a flurry of shopping causes one of your credit cards to hit the charging limit, your FICO score (the most commonly used scoring model today) may sag. However, send a big check that covers the amount you spent, and it will soon recover.

It sounds like you already know that deleting a balance will help your scores rise, though, and that makes me happy. One of the worst credit myths that refuses to go away is that hanging onto consumer debt is good for a credit score. Not so! As with cologne, less is best. Charging on a regular basis — a few times a month, say — and keeping balances low or at zero is what will really drive those digits up.Ask Erica

Therefore, to answer the first part of your question, your credit rating will indeed escalate when your repaid account is recorded by your credit card company — though the positive effect may take about 30 days to register. Hopefully you can wait that long. In the meantime, you can enjoy another strong side benefit of being back in black. You’ll avoid interest being added to the debt, so you’ll come out ahead financially as well.

Now, as far as shutting down an active credit card, you may want to hit the brakes on that plan. While it’s wise to have only the plastic you need, want and will use responsibly, canceling longstanding accounts can deflate a FICO score. The reason for this is that it hits a number of scoring categories:

  • Amount you owe in relation to the amount you can borrow. The second weightiest factor in a FICO score calculation (the first is your payment pattern) is your outstanding debt-to-credit ratio. Owing less than 35 percent of your combined credit limit is good, but paying off everything you borrow is best. So if you were to cancel a card that has a large credit limit but still owe a lot of money on another card, you might push your credit utilization ratio skyward.
  • Length of your credit history. Another category is how long you’ve had credit. An account that you’ve used well for many years helps your scores stay in the upper realms. Close it, and they may decline a little.
  • Various types of credit you possess. Creditors like to see that you can expertly handle a wide spectrum of credit instruments. If you were to cancel one type of card (and don’t have another card of that type), this section may be negatively impacted.

As far as just how your credit activity, whatever it may be, will translate into specific number of credit score points, that’s impossible to say. FICO doesn’t offer that kind of information, but rather publishes general guidelines. That said, it’s clear and true that when you use a variety of credit types for many years and constantly repay what you owe on time and in full, a fabulous score is sure to follow.