Best way to pay off credit cards and increase credit score

Submitted by herbolaryo on Tue, 06/10/2008 - 02:57

1. Some say that it is will increase FICO score faster if you leave out a balance in your credit card payment :?:
2. Some say that if you pay in full immediately, FICO score won't be affected because you did not show a real history of credit history. :?:
3. Some say that you need to have a balance of 2-3 months before paying in full so that it will affect your credit score. :?:

Which one are true and which one are just myths?
Kindly give links to support the truth regarding credit cards

Hi Herbolaryo
If you want to increase credit score, it is advisable not to put up big balances in your credit card as it hurts your credit score no matter whether or not you pay the bills in full each month. It however does not mean that you should not pay off your balances in time, You should always try to make regular payments, but what gets reported to the CRAs is the balance reported on your last statement. So try use your credit cards lightly and don't put huge balances in it. It is advisable to spend 30% to 35% of your credit limit. In this way you can increase your credit score.

Tue, 06/10/2008 - 06:57 Permalink

The fact that you need to have a balance before paying the debt in full to increase credit score is not correct. In fact paying off the debt in full does not hurt your credit score, it usually helps in improving it. It's quite true that paying off credit cards increase credit score. If you make payments on time, it will add to your credit score, no matter whether you have a balance left on your account or not.

Tue, 06/10/2008 - 07:14 Permalink

Okay I myself am trying to figure this out too. So if you only make a major purchase on your NEW card and pay it off in two monthly payments does it help? I also hear a lot about always leaving a small balance on a card and making monthly payments to establish a payment history. What are the easy ways to increase credit score?

Tue, 06/10/2008 - 10:10 Permalink

you need to pay a little bit at a time to establish a credit history, paying it off all at once will not establish this history needed.

So my advice is to pay in monthly payments.

Thu, 06/12/2008 - 00:50 Permalink

Yes, I agree with you goodnatured. But you should always pay back the amount in time and never be delinquent. Delinquency always negatively affects your credit report and has a bad impact on your credit history. I would prefer to pay my regular bills through these cards and repay them on time for building a good credit history.

Thu, 06/12/2008 - 07:13 Permalink

The key to raising your score is to have a positive payment history, so pay it in several small payments and be on time with your payments.

I have been trying to reestablish a good credit rating, it takes a long time and it takes a lot of discipline, sometimes I slip up and when I do, one mistake will cost you months and months of work.

Sun, 06/15/2008 - 09:11 Permalink
C Hertan (not verified)

I have a credit card which I have paid off sometime ageo and decided that I will not ever be using this card again and want to close the account. Will this hurt my credit?

Tue, 06/17/2008 - 22:34 Permalink

Hi C Hertan
Credit history constitutes about 35% of your credit score, and so old credit cards count a lot in improving your score. We all know that credit card increase credit score. Since you had paid off your credit card dues, maintaining the card will in fact increase credit score. If you close it down, it will lower down your credit score.

Thu, 06/19/2008 - 09:40 Permalink

wow, I did not think that it constituted that much of your credit report, I knew it was a big part, but never imagined that it was that much.

I know that closing it willl lower your score because it takes away from your available credit. Closing it will definately lower your score.

Sat, 06/21/2008 - 17:08 Permalink

Hi Goodnatured
There are five major factors that determines your credit score. Among them, the credit history constitutes about 35% of your credit score, about 30% of your credit score depends on the amount you owe, 14% depends on the length of the credit history, 10% of your credit score depends on the types of credit you owe and 10% depends on opening any new lines of credit.

Mon, 06/23/2008 - 06:19 Permalink

Yes, it is true that if you want to keep your credit score in a better position, it is essential that you do not close down your old credit account as it will affect your credit history which is in fact the most important determinant of your credit score. Moreover, you should not apply for or open any new lines of credit within a short period of time. This is because as soon as you apply for a new credit, a hard inquiry is made which gets reflected in your credit report. More and more hard inquiries implies that you are credit hungry, which in turn lowers your credit score. Paying off credit cards increase credit score only when they are maintained properly.

Mon, 06/23/2008 - 06:31 Permalink

True, You bring out some really good points about closing an account and the issues of applying for new credit. Both will lower your scores, great job on this post.

Wed, 06/25/2008 - 01:53 Permalink

Hi Nobody
Paying credit card balance regularly improves your credit history. This credit history constitutes about 35% of your credit score and hence improves your credit score. Now apart from this if you spend not more than 30% of your credit limit, do not go for new lines of credit and if you use a credit card which is much older, then your FICO score will definitely increase faster.

Mon, 06/30/2008 - 07:20 Permalink

Ok, I understand the reason for keeping 30% of your credit limit as a balance in order to make timely payments and build up a trustfull history for lenders to see. My goal is to pay some cards flat out and leave them open. I am trying to really lower my debt-to-credit ratio by a huge percentage. This can also raise your FICO score. The question is, which way would work better? Maybe keep a 30% balance on one card and pay off the rest? I have 2 CC's and 2 department store cards.

Tue, 07/08/2008 - 05:18 Permalink

Hi lostrikan
Actually, it is not that you should keep 30% of the credit limit as balance but you should actually spend not more than 30% of the credit limit at a time in order to increase your credit score. After making purchases upto 30% of your limit, pay back the money first and then re utilize the card. Since you have 2 ccs and 2 departmental store cards, try to spend a maximum of 30% from all the cards taken together. But make sure you pay back on time.

Tue, 07/08/2008 - 08:32 Permalink

Hey Justin,

Thanks for explaining that. That was pretty much what I meant. My plan is to pay off one CC and one department store card off completely. With the other department store card I will purchase and pay off accordingly and keep one CC for disaster back-up. The thing to remember is that any loans also play a part in the percentage. I believe many of us make this mistake, I did. Let's say that a loan started at $7,000. And it has been payed down to $4,000. That $4,000 is considered as debt while the original $7,000 is the credit limit even though we cannot use the $3,000. So this should be played into the CC debt and other debt in order to calculate the percentage. Please correct me if I am wrong...

Tue, 07/08/2008 - 21:54 Permalink

this is confusing why can't you use the $3,000 that is paid down?

Wed, 07/09/2008 - 02:35 Permalink

That is because it is a loan. If you take out a loan for $7,000 and pay it down to $4,000, there will be $3,000 payed off. I was told that the credit goes by the full amount and not just that only$4,000 is still owed. This means that we were 'credited' $7,000 in their eyes until the whole loan is payed. It's untouchable credit and may help if we only owe a small amount on the original loan. Still lost? =(

Wed, 07/09/2008 - 03:30 Permalink

okay, that makes more sense, so it is not an open line of credit. Sorry to hear that. Maybe you can pay it off and be done with it right? Hopefully this all works out for you.

Thu, 07/10/2008 - 02:34 Permalink

I don't have this loan. It was used as an example. I do have other loans. For example, I have car and motocycle loans that do fall into this category. I had no idea that these affected my scores like this. Isn't credit handling so confusing? Drives me nuts... =(

Thu, 07/10/2008 - 03:03 Permalink

Yeah, it can be a headache that is for sure, but once you start learning it, it gets pretty interesting. Especially when you start learning about the collection agencies and how to shut them down. I really enjoyed learning that part.

I have a collection agency that violated the heck out of the laws that is sueing me in civil court, it have been almost two years since the original summons, now back in January they sent it to arbitration, well that was supposed to happen around February, here it is July and nothing has happened at all. I just learned some stuff on here the other day that will help me with the arbitration if it ever happens.

Later :D

Thu, 07/10/2008 - 03:34 Permalink

Take about three months to make sure that the new informaion goes on your report.

Thu, 07/10/2008 - 15:44 Permalink

You should pay it over a period of time, not all at once, this will establish a payment history that will reflect on your credit report. A history of payment history is an important part of your credit report.

Sat, 07/12/2008 - 03:05 Permalink

Have you had a bad experience? Some people use their credit cards on a monthly basis.

Tue, 07/15/2008 - 22:45 Permalink

Credit cards are a bad experience for those who try to utilize the entire credit limit on the cards and are not able to repay back later and thus end up with huge debt and paying high interest rates. But if one uses the credit card wisely to make only necessary payments and repay them on time, only to build up a good credit history, I don't think that credit cards would create problems

Wed, 07/16/2008 - 06:01 Permalink

Hi goodnatured
Bad experiences with credit cards occur only when we have some debt to repay and the debt is sold to any collection agency by the credit card company. These CA create the most problems and gives us bad experiences. But if we make the payment on time to the credit card company for the amount we have used in our card, I think there should not be any problem.

Wed, 07/16/2008 - 06:56 Permalink

I agree with both of you. Credit card pose a threat to those who spend money from it, without looking back to his repayment ability. The amount spend on the credit card should not exceed 30% of the total available credit. This is because, amount owed contributes about 30% of your FICO score and spending more than 30% of your credit limit hampers your credit score.

Wed, 07/16/2008 - 07:06 Permalink

They are so easy to get up there on the balance, especially now with the price of everything, a tank of gas, some groceries, before you know it, you are well over 30%.

Wed, 07/16/2008 - 14:22 Permalink

You are right goodnatured, but we must keep a track of out credit card spending to improve our credit score. You must be knowing your credit limit. Just use 30% of the limit. Pay the rest of the bills in dollars or by other credit card if you have any. But limit the spending to 30% of the credit limit in that card too.

Thu, 07/17/2008 - 10:36 Permalink

I guess it is okay to have them as long as you can keep track of where you are and what your balance is, the problem that I always had with them was that the fees they add on always seem to be a big part of my credit cared, so you barely get to spend, you just always pay fees.

Sat, 07/19/2008 - 02:35 Permalink

Hi goodnatured
I think it is always better to keep track of our spending. Moreover, keep the credit cards if you can afford to pay else close it down because falling in debt for the amount of the annual credit card fees is not worth. But when closing a credit card prefer to close the new ones rather than closing the old ones since old credit cards add up to make your credit history.

Sat, 07/19/2008 - 07:15 Permalink

True, you would want to keep the ones with the most payment history.

Sat, 07/19/2008 - 11:18 Permalink

This makes perfect sense, the longer you have the card the longer the credit history, it just makes sense to keep the older cards open longer than the new ones.

Sun, 07/20/2008 - 01:18 Permalink

The older credit cards make up a good credit history only if your payment record is good in those cards. If you are late at paying the bills in those credit cards, it may even hamper your credit score. So I would always prefer to maintain one or at the most two credit cards so that I can keep a track of my expenditures on those cards and do not miss any payments. This would help me to maintain a good credit history.

Tue, 07/22/2008 - 04:16 Permalink

Good idea Anthiny. Never get so you can't monitor bills that are incoming.

Wed, 07/23/2008 - 00:14 Permalink

I keep them all in one folder and try to pay them on time. As far as out of the pocket spending, I find it easier to not spend my money if I just have a little bit of cash on me.

Thu, 07/24/2008 - 01:30 Permalink

I don't ever keep out more than 20 dollars. This is every two weeks. I found that is usually just wasted.

Thu, 07/24/2008 - 23:51 Permalink

You are right aprilsjewels. Since credit history contributes the major part of your credit score, maintaining a good credit history, or in other words, repaying the debt on time, helps you to increase your credit score.

Mon, 07/28/2008 - 13:24 Permalink

It takes hard work and commitment to get your credit straightened around so if you have good credit always strive to keep it that way. Paying debts on time is not hard if you know when your monthly bill usually arrives. I try to stick everything intop a budget. we get paid every two weeks so I have a list of which bills are do and when. That way I know I am not forgeting any.

Mon, 07/28/2008 - 14:01 Permalink

It is hard when you fall short a few bucks though, I have done it and put something off, I have paid late payments but have always tried to keep it in the 30 day window if at all possible.

Tue, 07/29/2008 - 00:43 Permalink

I have and will rpobaly be there again. I would just love to not have any bills other than my utilities. Once these home bills get paid I don't want to see any more again. At least gas is slowly coming down. I heard something on the news a month or so ago that they were considering a second economic payment..alot less than the last but hey beggars can't be choosers and I still have no clue as to how I am paying fall taxes and getting fuel. That has my stomach in knots.

Thu, 07/31/2008 - 14:16 Permalink