Congratulations on saving enough money to pay off your credit card balance in one lump sum; the benefits go beyond avoiding finance charges. Your credit score should improve, maybe even dramatically. In general, paying off revolving debt is a far better indicator of your creditworthiness and character than an installment loan.
Identification
While nothing is a guarantee in the FICO algorithm, paying off even just a few hundred dollars in credit card debt could be boost your score. The FICO model treats paid revolving debt as an accomplishment even better than a paid installment loan. If you pay off thousands of dollars in credit card debt in a lump sum, expect a huge boost, because total debt counts for 35 percent of a score.
Further Benefits
Paying off credit cards gives a double boost to your score, because you also lower your credit utilization ratio or the percent of your credit limit left unused. You should keep all cards -- individuals and in total -- below 30 percent utilization. With a complete payoff this goes to zero, so you maximize the points for this category. Maxed-out card alone can do 45 points in damage, according to Bankrate.
Misconception
The credit bureaus report whatever the credit card company puts on your statement as the last balance, so even if you pay the entire balance and make no further charges, you must wait until next month for your report to reflect a zero balance. This also means you do not have to carry a balance for the creditors to update your report -- a common credit scoring myth.
Tip
You must use your card every few months or the creditors won't update your report and the bureaus assume the account is dormant. Nobody knows how often you must use a card for it to remain active, but six months is usually the maximum time you can go without activity. This is not the same as carrying a balance. You should always pay the balance before the grace period so you do not incur finance charges on the balance.
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