Paying Off Credit Cards?

Lets say you pay off a credit card or any other "bad debt". How long does it take for something like this to reflect in your credit score?

I'm assuming paying off credit cards positively affects your FICO score...but by how much?

Comments(8)

  • mcl81904th March, 2004

    Usually the greatest benefit is received by paying it off, then using it and paying it off month after month.

    The credit score is a reflection of how you manage your debt, so they like to see that you use that debt, and pay it off responsibly.

  • nebulousd4th March, 2004

    Ah, I see.

    So is there an immediate impact when you pay off a large debt for the first time? If you always had a balance on the card, does a payoff have an immediate impact.

    What about those people who payoff the card and then cut them up and never use them again....does their score take longer to rise?

    How is a car loan or house loan debt, different from credit card debt...in terms of credit score? I know it's all about being responsible and paying on time, but I just don't truely understand what these credit people base their scoring system on.

    I'm just trying figure out what is the best way to raise MY score according to THEIR terms.

  • HouseBuyerGuy4th March, 2004

    Honestly, I beleive it takes 1-3 months depending on what cycle is going on. What I have found is that the credit bureaus do not update your info every month but usually 2-3 months. It is too much work.
    For example, I have a credit card I use for many purchases, when the bill comes every month, I pay the thing in full. Well for me it has never showed up has being paid in full but always shows a balance!
    IMHO,There needs to be a better scoring system, until then, all we can do is try to figure it out and play the game![ Edited by HouseBuyerGuy on Date 03/04/2004 ]

  • kimmyjack4th March, 2004

    If you have any negatives, you should start an investigation to get them removed. This only takes 30 days and I have a friend who went from the mid 500's to above 700 in a month. So if you do this along with paying off your cards, you should see a significant improvement in 2-3 months.

  • guitarbrad4th March, 2004

    Nebulous,
    You can go to www.myfico.com and order a credit report, or all three reports to obtain your fico scores. They have a "credit simulator" which lets you see what will happen to your credit score should you pay off your credit card debt, take on a new loan, etc. It's interesting.

  • smallinvestments4th March, 2004

    I work with credit reports all day long...Here's the jist. You pay off your card, you will have a positive reflection within 30-60 days if you had more than 50% of the balance used up and paid it off. You can have it reflect earlier if you contact the bureau that most commonly relects your zip code. (if you let me know your zip, I'll give you the name and number of the bureau to call.

    Also, if you have a card and cut it up almost immediately, this is a bad reflection on your credit. For a good credit rating of @ 640, you'll need 3 lines of credit (including your mortgage) that show a positive history of atleast 12 months. Anything below 12 gives a derogatory hit. For better credit, keep those ancient cards around even if you don't use them... The longer a card is open, the better your score will be as time goes on.

    Let's say you have a charge off or something bad on the credit...here's the key, start writing letters on the computer to dispute the infringement. Then send 50 copies to the major bureau reporting the red flag. If one of those letters goes without a response for 30 days, it is mandatory that the derogatory mark comes off your credit. This is how these companies promising to improve your credit do it...They just flood them with letters. I've seen it improve credit by 100 points.

    Also, any collection accounts? Big no-no...call the companies and tell them you don't have the full amount, but you're willing to make things better. They will usually give you a payoff of 30-40% of the charge. Don't tell them you are buying a property...they'll know that the lien needs to be satisfied before financed and not give you a discount.

    Anyother questions, feel free to shoot me a message.

    Your score is a huge part in applying for a loan...try to stay above 640...700 and above is golden...don't keep pulling your credit, that will be negative hits also.

  • diatribe4th March, 2004

    Quote:
    On 2004-03-04 12:06, smallinvestments wrote:
    I work with credit reports all day long...Here's the jist. You pay off your card, you will have a positive reflection within 30-60 days if you had more than 50% of the balance used up and paid it off. You can have it reflect earlier if you contact the bureau that most commonly relects your zip code. (if you let me know your zip, I'll give you the name and number of the bureau to call.

    Also, if you have a card and cut it up almost immediately, this is a bad reflection on your credit. For a good credit rating of @ 640, you'll need 3 lines of credit (including your mortgage) that show a positive history of atleast 12 months. Anything below 12 gives a derogatory hit. For better credit, keep those ancient cards around even if you don't use them... The longer a card is open, the better your score will be as time goes on.

    Let's say you have a charge off or something bad on the credit...here's the key, start writing letters on the computer to dispute the infringement. Then send 50 copies to the major bureau reporting the red flag. If one of those letters goes without a response for 30 days, it is mandatory that the derogatory mark comes off your credit. This is how these companies promising to improve your credit do it...They just flood them with letters. I've seen it improve credit by 100 points.

    Also, any collection accounts? Big no-no...call the companies and tell them you don't have the full amount, but you're willing to make things better. They will usually give you a payoff of 30-40% of the charge. Don't tell them you are buying a property...they'll know that the lien needs to be satisfied before financed and not give you a discount.

    Anyother questions, feel free to shoot me a message.

    Your score is a huge part in applying for a loan...try to stay above 640...700 and above is golden...don't keep pulling your credit, that will be negative hits also.


    There are a couple of things that are incorrect and/or misleading in the previous post.

    First, paying off your credit cards can give you piece of mind and it will increase the amount of your available credit, but it has been proven that the best thing to have is about 10% to 30% of your available credit being used.

    Having zero balances on your credit cards does not show that you know how to handle your credit wisely, it just shows that you have available credit. If you have, say, 5 cards with 1,000 CL on each with zero balances, bankers and credit deciders look at this as you have the potential of running up all that credit. Also, with Zero balances on your credit cards, you are not creating a solid payment history - which is a very important piece of your FICO scores.

    The other point I take issue with in the above post is that pulling your credit reports FOR YOUR OWN USE will not affect your credit scores in any way. When you pull your own report for your use, it is considered a "soft pull" and soft pulls are not counted towards your scores in any way, shape or form.

    If he was referring to pulling credit because you are applying for new credit, then he is correct, too many "hard pulls (those done by potential creditors)" will affect your score negatively.

    In reference to scores, 640 is a decent score however, its not the commonly known threshold for Prime / sub Prime rates. 680 is the beginning of Prime rates with the next "hurdle" being about 720. Now, each lender makes their own decisions on these thresholds, however, 680 and 720 are the most common and good goals to shoot for.


    In regards to the collection accounts, again, I think this is bad advice. First of all, don't call them without knowing what to say, that would be bad. They may end up using the information you provide to them to "verify" the debt. I would strongly consider you take a look at http://www.Creditboards.com for more useful information about how to handle collection accounts on your credit reports.

    In regards to writing 50 letters to the credit bureaus, while it may sound like a good idea, remember that to accurately track them you need a paper trail. You will need to have a certified mail return receipt requested for each of those letters. Just one CMRRR costs about $4.80. There are more constructive ways to spend $200. Also, he is incorrect in stating that they have to respond within 30 days. They have 30 days to INVESTIGATE and an additional 5 days to respond for a total of 35 days from the day they receive your letter. There are also further steps that can be taken if they do respond to all 50 of the letters that can help with removal of negative information.

    Furthermore, if you start an investigation into an item on your credit report and then start another investigation, this will, in fact, give the Credit Bureau additonal time to investigate your items. I do know that the 2nd letter they receive in regards to that item will add 15 days to their time to investigate, plus 5 days for mailing, so they will have up to 50 days to respond. I do not know how a 3rd, 4th, or 47th request for investigation would be handled by the credit bureau.

    If you are interested in repairing your credit, if it is in fact bad, I suggest doing it yourself and steer clear of credit repair agencies. They will only cost you money when you can do most of it for free.

    I have to say that, if the previous poster is offering the same information he gave you to those whose credit reports he is dealing with "all day long", they aren't getting the best information possible.

    Good Luck to you.







    [ Edited by diatribe on Date 03/04/2004 ][ Edited by diatribe on Date 03/04/2004 ]

  • smallinvestments4th March, 2004

    Sorry to be so general... I agree with the rebutal to my post....

    I was generalizing to give the jist...But agree with some of what he is stating.

    There is a lot involved with credit and it goes much deeper and takes common sense of needing balances to show you are paying off your debts, and what not.

    Ask your lender on your guidelines for your particular loan. I was using the average I see from lenders that I use as a loan officer.

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