Credit card balances

[Maya12]

Why doesn't paying off balances help our credit scores? How does it play into our credit scores?

I heard it drops? is that true.

Thanks

[MarineVietVet]

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@Maya12 wrote:

Why doesn't paying off balances help our credit scores? How does it play into our credit scores?

I heard it drops? is that true.

Thanks

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You are talking about credit card balances correct? Not installment loan balances?

Utilization of revolving credit is 30% of your total score so it's a very important part of scoring and getting that utilization low (<9% overall and for each individual card) and keeping it low will help a score.

What exactly did you hear about paying off balances not helping a score? If you have a zero balance on every card every card every month that might hurt a little because FICO likes to see some activity.

Could you give more deatails of your situation?

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[RobertEG]

If you meant paying off balances of delinquent debt, it is because FICO is not primarily intended to rate your overall credit worthiness.  It is primarily a risk analysis of your liklihood of going delinquent in the first place.  Paying bad debt does not erase the prior occurance of the delinquencies themselves.  FICO consders the delinquencies as being one of the strongest predictors of the liklihood of future delinquencies.

While not directly helping your credit score, paying of ole old debt shows prespective new creditors, when they do a manual review of your CR, that you did satisfy the debt.  The presence of old, unpaid debt in your CR is a red flag.  Most creditors dont grant new credit based only on your FICO score.

Additionally, the continued presence of bad debt in your CR amy lead to future harmful impacts,  For example a closed OC account with bad debt can lead to a charge-off, and unpaid CO could lead to a collection, and so on.

So, to answer what I think is your question, it improves your CR upon manual review, and might also stop further hemmoraqing of your score.

[Maya12]

Hi,

To clarify my comment:

 I meant when I pay a credit card bill in full, does it drop my credit score.

For instance I have a current - in good standing - revolving Captial One Visa and HSBC Visa bill and would like to pay off the entire bill in full.

[haulingthescoreup]

No, if anything, it will help.

You might be thinking about the odd scoring quirk where most people find that if all their CC's report $0 balances, their scores drop. This isn't true for everyone, but it is for most people.

The way around that (if it bothers you) is to pay all your balances before they report (generally the statement date) except for one card. Let $10-20 report on it, and then pay it off before the due date.

[MarineVietVet]

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@Maya12 wrote:

Hi,

To clarify my comment:

 I meant when I pay a credit card bill in full, does it drop my credit score.

For instance I have a current - in good standing - revolving Captial One Visa and HSBC Visa bill and would like to pay off the entire bill in full.

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Now I get it. (I think  ).

Some people report a small drop in their scores if all of their cards report a zero balance each month because FICO likes to see activity. You certainly want to PIF every month to avoid paying interest. Use you cards as much as you want during the month but only let one of them report a very small (9% or less of the credit limit) balance on it's monthly statement and then PIF before the due date.

On your other card always try and let it report a zero balance each month. As I said you can use it as much as you want during the month but try and time your payments so that the desired zero balance on this card is achieved several days before it's statement posts.

Does this answer anything you were wondering about?

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Maya12]

Yes, Thank you .

Now I get it. It sounds like...it is ok, to pay off your debt....but, continue to keep regular activity on the card for reporting purposes.