Will my credit score go up...

Question

Will paying off ALL credit cards (about $30k) make my credit score go up? And if it does, how long does it usually take to show up?

Scott Trench · Answer

Yes, paying off credit debt will generally improve one's credit score. This happens because of several reasons, among which the following might be the most important:

1) You remove delinquent debts from your credit report. If you have delinquent debt, paying it down and getting current will improve your score.

2) You reduce your credit utilization.

These effects can increase your score within days or weeks of making significant changes. But, the credit score is designed to be a reflection of your overall likelihood of paying back creditors. So, changing it dramatically will take time - if you could erase years of mistakes in just a few weeks, the credit score would not be a very useful tool for lenders and landlords, right? Consistency over 6 months to a year should be enough to take even folks with really bad scores to "fair" if they are able to get current on everything and eliminate a significant chunk of debt. But, building "good" or "excellent" credit can take years or decades.

For example, I'm right on the border of "good" and "excellent" and have NEVER missed a payment, NEVER been late, and am very diligent about my finances, keeping my credit utilization very low. Why am I not deep in the excellent category? Because I don't have the decades of credit history that would put me there.

However, there's no reason why some hustle and smart repayment of your debt according to a solid plan shouldn't result in putting you in position to have a credit score that will allow you access to conventional financing in 12-18 months, or much less.

John Dombrowski · Answer

@Jeff B.,

I will still have some debt. I still have my car payment. I lost my job last month so I just want to get rid of my credit card payments and a big Prosper personal loan payment so I don't have all these payments every month until I can find another job.

Jeff B. · Answer

Going to zero debt is not the perfect solution.  The math used to derive the FICO score is a tightly held secret, but they like to see SOME on going obligation.   The score gets hit most by a high percentage of utilization (say 90% of the limit).

Personally, I wiped out my debt but still use one card and pay the bill in-full when it arrives.

Changes in the FICO typically occur 3-4 months.

Bob Derwin · Answer

It certainly should as the % of credit used will drop.  I'm guessing it will take 1+ billing cycles, so it could take up to 60 days.