How Much Will a Credit Score Rise With a Paid-Off Credit Card?

How you use your credit card -- and the payments you make on it -- help determine your credit score. While paying off any credit card debt you incur is admirable, the amount that doing so impacts your credit score will vary. In certain situations, paying off your credit card may even prove detrimental to your credit rating.

Scoring System

You have more than one credit score. Not only do you have a separate credit score with each credit bureau, lenders use different credit scoring models when determining your ability to repay new credit cards and loans. Each credit scoring formula differs, but all use your credit report information when calculating your score.

Because everyone's past credit history varies, the impact that positive and negative entries have on credit scores also varies. Thus, there is no clear way to estimate how much your credit score will increase should you pay off your credit card debt.

Credit Card Balances

The amount your credit score will increase after paying off your credit card depends in part on how much you owed. In general, the higher your credit card balance was before you paid off the account, the greater the impact on your credit score.

This is because the major credit scoring models, such as the FICO model, depend partially on a ratio of the amount you owe to your spending limit when determining your score. The distance between your balance and your spending limit represents your credit utilization rate. A high credit utilization rate hurts credit scores while a low one is beneficial. Thus, you'll see a greater positive change to your credit scores after paying off high balances.

Closing Your Account

One of the major mistakes consumers sometimes make after paying off their credit card accounts is closing the account altogether. While closing your credit card account rids you of the temptation to accrue more debt, doing so lowers your total credit utilization rate. When this occurs, your credit score will naturally drop. Avoid closing your credit card account after paying off your balance in order to preserve your good credit rating.

Consumer Considerations

If paying off your credit card balance isn't an option, consider paying it down instead. Paying down your balance automatically lowers your credit utilization rate, increasing your scores. You gain the same benefits from carrying a particularly low balance as you would from paying off the account.

Provided you pay your credit card provider on time, the company may agree to increase your spending limit. Asking for a spending limit increase has the same effect as paying down your credit card balance because it decreases your credit utilization rate -- increasing your credit scores.