Does Paying a Credit Card Balance in Full Hurt a FICO Score?

More than half of all American credit card holders pay their balance in full monthly, according to a 2009 "Consumer Reports" magazine survey. You must make the minimum payment that your card issuer bills you for each month, but you can send more or pay off the whole balance any time. You affect your credit score any time you pay off a debt completely.

Definition

Credit scores were originated by the Fair Isaac Corp., now known as FICO, as a measure of a person's creditworthiness. FICO still calculates these three-digit numbers, and the Experian, Equifax and TransUnion credit bureaus have their own versions, all of which are determined with similar formulas. Your credit card balances and payments are an important part of your scores.

Factors

Your payment history on your credit cards and other loans make up 35 percent of your credit score, while your balances are 30 percent of the score, according to FICO, so paying a card in full affects your credit rating. Lower balances are better for your credit score, so paying off your entire balance is a positive step. The best available credit to owed debt ratio is spending no more than 10 percent of your available credit, although you can go as high as 30 percent without major harm, MSN Money writer Liz Pulliam Weston explains. You make your ratio more favorable whenever you pay off debts.

Considerations

You destroy the positive effect on your credit score from paying a credit card balance in full if you subsequently close the account. You eliminate a credit line by terminating a credit card account, which changes your overall available credit as compared to your debt load. For example, you might have two credit cards, each of which has a $4,000 balance and $10,000 credit line, meaning that you have used 40 percent of your spending power. That drops to a more favorable 20 percent if you pay off one of the cards and leave it open, but it stays at 40 percent if you pay and close one of the accounts.

Warning

Your credit card issuers cannot legally charge you a penalty if you pay your balance in full and then stop using your account, according to the Board of Governors of the Federal Reserve System, but it can close out the account for non-use, which eliminates your available line. You can keep the account active without incurring interest by using your card every few months and keeping the balance small enough to pay in full after every use. Otherwise, your FICO score will drop if the card issuer suddenly cancels your account.