Current Events > Is it myth that paying off your credit cards hurts your credit sorce?

(+) Yeah! (+)

I have heard it both ways that it doesn't hurt and that it does. Any one of your brainy people here no the truth.

Because I am thinking about paying off all of my cards so I can get a car.

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Here is how I understand it. Paying off more than your monthly is not helpful. So if your month ended with you owing $500 but at the current day you've used up $600 of your credit, only pay the $500.
If you aren't paying off your entire monthly then you are also hurting your credit by letting it linger. Also you are costing yourself more money since you are generating interest on the remainder. Outside of that, paying off your credit isn't as damaging as closing a credit card itself. I've read and listened to stories of people having their credit hit because they were benefit chasers and once they got benefits from having a card they would close it. The closing of a card hits your credit, I guess.

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Night hurt short term but yeah kind if a myth

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Carrying a zero balance is what will hurt your score. Paying your statement balance on the due date will not necessarily hurt your score unless you stop using the card altogether.

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There's no reason to pay interest on a credit card if you don't have to.

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Thanks for the input everyone.

I just remembered that this card has one of 0 interest for 18 months. I better pay this one off because I get all that back interest put on me at once.

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It doesn't hurt.

Source, I payed off a few thousand dollars on a card at once. My credit score jumped up about 40 points.

I use my card for everything. I pay off the balance regardless of how much it is every Wednesday. Ive seen my credit score go from 760 to 814 over the years doing this. Now it fluctuates from 803 to 814 not sure why

Paying your card to 0 hurts. But you absolutely should pay off your statement balance every month to avoid interest.


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If it were true, then my credit score would have never went up since my balance is always paid every month.

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not a credit card, but my credit dropped 25 points when I sold my leased car. I didnt lease or finance another car at the time either.

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sondast posted...

If it were true, then my credit score would have never went up since my balance is always paid every month.

Showing that you are reliable at paying increases your score by more than having a 0 balance hurts it.

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Myth
I suppose it's true if you're a weirdo who only uses credit cards in emergencies and they close your account from lack of use. Just put reoccurring bills on it if you pay it off every month. Get points, pay no interest, have good credit.

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this is some maddening hocus-pocus bullshit, i can't believe we put up with it

seems like CE is mixed on this

I personally pay when my statement is due, and will occasionally pay it off if i reach my limit

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Paying off your cards doesn't hurt your credit score. Closing your credit card accounts after they're paid off hurts your credit score.

Positives for credit score in this regard:

• Low total credit usage %
• High total credit available
• Multiple open accounts
• High average account age

What a lot of people do once they pay off their credit cards is close the account, which hurts you in total credit, number of open accounts, and average account age.

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Yes

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Want to know some fuckery? Paying off a loan actually hurts your credit score (since it closes an account and lowers your overall credit age). My score actually dropped 4 or 5 points when I paid my car off. Shit is a scam lol

For credit cards you can pay them off without any negative effect. Things that negatively effect you include high balances, high percentage of credit used, and late payments.

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My wife and I have put damn near everything on our cards in the 16 years we've been married, We pay it off every month and have never carried a balance. We have essentially perfect credit.

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JACKBUTTMOMMY posted...

Because of the myth. I have always paid my card off in full monthly and was never penalized for it.

This is likely the reason for the myth, and is true.

Even that's not always true, it just depends on how old that account was and how old your other accounts are, etc

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TheBiggerWiggle posted...

Want to know some fuckery? Paying off a loan actually hurts your credit score (since it closes an account and lowers your overall credit age). My score actually dropped 4 or 5 points when I paid my car off. Shit is a scam lol

For credit cards you can pay them off without any negative effect. Things that negatively effect you include high balances, high percentage of credit used, and late payments.

Note that Vantage Scores (most free scores, like from Credit Karma) and FICO scores (the hard pull for big things) are calculated differently. Allegedly, FICO looks at all accounts, not just open ones so your "real" credit score isn't actually affected by paying off loans.

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I leave $50 to 100 left on the card un paid.

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GregShmedley posted...

It is not a myth. On three separate monitoring tools, my score dropped about 25 (average) points after paying off a couple high balance cards to $0. None were closed. Just did this two weeks ago.

I expect my score to bounce back up in about a month or two; they will likely go higher if I used one of the cards for a small purchase and got a statement with a balance.

The drops are usually negligible, but you can take hits for going to $0 balance without closing accounts.

My personal guess is that it drops because you are no longer seen as a source of income with a balance of zero. So while your payment history is good while holding a balance, you get a boost to your rating since you are a proven reliable source of income for the company. When you have a good payment history but a balance of zero, you take a hit because the company sees you as a +zero on the balance sheet. I imagine you take a double hit with a bad payment history and zero balance or negative.

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Bryfang posted...

No, it doesn't hurt your credit score. I heard that same shit from family when I was in my early 20's and I'm glad I didn't listen to them.

Pay that shit to 0 every month, fam.

Credit card companies actually hate people that do this, they call them "freeloaders."

^THIS.
Seriously, to anyone reading this, it's best to pay it off down to zero every month.

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If that were the case then people with massive credit card debt would have perfect scores and people who pay it in full every month would have terrible scores.

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I hate the credit score system. It's essentially what that Black Mirror episode made such a big deal about.

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There is a huge difference between not carrying a balance and have a balance of 0. Not carrying a balance is good, you avoid interest and are seen as reliable. Having an actual balance of 0 is seen as you no longer using the account though.


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I pay my credit cards off once they post the statement with a balance on it.

This statement is what is captured by the credit bureaus, so you can have a nonzero credit card utilization being reported while still paying off the card every month. It's only if you let the outstanding balance go unpaid from month to month that you will start getting charged interest.

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The second post actually had it right. Pay off your statement debt every month.

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If you're looking to get a big loan, usually credit card history is negligible unless you're not making payments or have a huge balance

Just open a few cards, use them for the immediate benefits (like $200 back on the first $500), pay them off and forget about them

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I pay off my full balance on all my cards every month and have always done so except when having introductory 0% APR for the first 12/15 months. My FICO score is over 820 atm.

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If you never have debt reported to the credit bureau there is no way for your credit to increase

So if you were just starting out, and you got a credit card with a limit, let's say about $500.

You went to use the credit card for gas only. You pay it off with your bank account the minute you use the credit card for this gas or other small purchases.

You always carry a balance of $0. Because of this, credit companies will never be able to collect data on you saying that you had a debt, and then paid it off.

Having a debt, and then paying it ESTABLISHES credit. Companies have to see you do this, though.

Consistency in making payments on time, length of time with loan/credit card, and total credit limit (the total amount of $$$ you have across all credit lines. Loans DO NOT go into this amount) BUILD your credit.

If you are playing the credit game, a healthy amount of debt to carry is 15%-20% of your credit limit. And its imperative to get new lines of credit halfway between a CC expiring.

If a home loan was the only thing you ever did, and you did fine with it, you could easily have a great credit score of 800 after 25 years. But once the house was paid off? You'd probably drop below 700 and have 0 average credit age.

This is why its important to get new lines of credit every 3.5 years unless you have multiple, manageable loans; it will keep your credit age looking good. Loans are super dangerous the longer they are because you don't know what will happen in your life, whereas Credit Cards are much safer because they're shorter term.

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My credit cards almost always have a 0 balance each month. My score is in the 800s. I pay off the balance usually after a couple days after the transactions when I'm able to. Paying it off does not hurt your score.

Part of your score is determined by amount owed vs credit limit. The less owed and higher the credit limit, the higher your score will be. I've asked for a credit line increase on 2 of my cards just to raise my score and it did by a lot. My general use card has a limit of $6,000 while my Amazon only card has a limit of $7,000. The balance never even reaches over 1000 for either card.

Another factor is average age of credit accounts. Opening a new card drops the average age a little which can drop the score a little.

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Where people are confused is that credit cards have a statement closing date and a payment date. Once a month the statement will tell you how much you currently owe, which you have to pay by the payment date. You accrue interest when you don't pay off all of your balance before the payment date. You should never have that happen. It's just burning money away.

The incorrect logic of the "you should carry a balance" people is that credit bureaus can't see that you used your credit card unless you don't pay it all off and carry some of the debt into the next month. They are incorrect, because the credit bureaus only see what's on your statements. If you pay off everything you owe between the statement date and the payment date then you won't pay any interest and everyone can see that you used your card.

This sort of micromanaging on credit is silly anyway. Either way the difference is very negligible and the real secret to having a good credit score is just pay everything on time for a long time. You shouldn't spend extra money you weren't going to spend just to raise your credit score and you definitely shouldn't pay interest just to raise your credit score.

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Kuuko posted...

Where people are confused is that credit cards have a statement closing date and a payment date. Once a month the statement will tell you how much you currently owe, which you have to pay by the payment date. You accrue interest when you don't pay off all of your balance before the payment date. You should never have that happen. It's just burning money away.

The incorrect logic of the "you should carry a balance" people is that credit bureaus can't see that you used your credit card unless you don't pay it all off and carry some of the debt into the next month. They are incorrect, because the credit bureaus only see what's on your statements. If you pay off everything you owe between the statement date and the payment date then you won't pay any interest and everyone can see that you used your card.

This sort of micromanaging on credit is silly anyway. Either way the difference is very negligible and the real secret to having a good credit score is just pay everything on time for a long time. You shouldn't spend extra money you weren't going to spend just to raise your credit score and you definitely shouldn't pay interest just to raise your credit score.

You don't get charged interest when you make minimum payment lmao

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You credit score is meaningless. Credit bureaus / lenders don't look at it. They don't care what it is. Your credit score is essentially haruspicy and it's presented the way it is to make things easy to digest for the average person who doesn't know about about accounting.

Your credit score is formulated based on a trail of paperwork that you left behind when you do things like use credit cards or take & pay back loans.

When you apply for any kind of new credit or loan, the banks & brokers will look at the paperwork that's used to come up with the number, not the number itself. And I assure you, having paperwork that says "paid off all your bills every month" is not going to be considered a bad thing.


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Perascamin posted...

You don't get charged interest when you make minimum payment lmao

Yes you do what the fuck

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Tyranthraxus posted...

Yes you do what the fuck

I have a line for $8000, $5000, $2000, and $700.

The cards are Amazon, Ashley Homestore, US Bank, and Kohl's.

The only one that charges interest if full balance isn't paid is the Kohl's card at $700. You're probably using some supremely shitty CCs. You know Mastercard, Discover or some shit?

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Perascamin posted...

I have a line for $8000, $5000, $2000, and $700.

The cards are Amazon, Ashley Homestore, US Bank, and Kohl's.

The only one that charges interest if full balance isn't paid is the Kohl's card at $700. You're probably using some supremely shitty CCs. You know Mastercard, Discover or some shit?

Nope. I've got the same Amazon card and I assure you there's interest if you make only the minimum payment.

If you don't make the minimum payment, that's what we call "late" payment. The minimum payment is the minimum you need to pay to avoid defaulting. It is not the minimum to avoid interest. In order to not accrue any interest, you must pay off the full balance accrued during the previous billing cycle unless you have a special 0% interest financing offer which is never ever given out unconditionally.

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Perascamin posted...

You don't get charged interest when you make minimum payment lmao

i'm pretty sure that's how most credit cards make money - by the interest they charge on debt carried over (after you pay the minimum), usually 15% or so

Perascamin posted...

You don't get charged interest when you make minimum payment lmao

Perascamin posted...

I have a line for $8000, $5000, $2000, and $700.

The cards are Amazon, Ashley Homestore, US Bank, and Kohl's.

The only one that charges interest if full balance isn't paid is the Kohl's card at $700. You're probably using some supremely shitty CCs. You know Mastercard, Discover or some shit?

So this is the type of person who's subsidizing all my credit card rewards...

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Perascamin posted...

I have a line for $8000, $5000, $2000, and $700.

The cards are Amazon, Ashley Homestore, US Bank, and Kohl's.

The only one that charges interest if full balance isn't paid is the Kohl's card at $700. You're probably using some supremely shitty CCs. You know Mastercard, Discover or some shit?

Unless you have 0% interest on those cards because they're new accounts, you definitely get charged interest. That's how banks make their money and how some people end up taking years to pay down their credit cards.

"To see the impact of paying off a credit card with minimum payments only, consider a credit card balance of $5,000, at the current average APR of 21.21% (as of January 2020), and minimum payment as 2% of your credit card balance. Making minimum payments only, it would take you over 30 years and $21,643.83 in finance charges to pay off this debt. That doesn't include any fees you might pay over the life of the credit card balance."

Source: https://www.thebalance.com/how-long-to-pay-off-balance-with-minimum-payments-961120

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mobilebloechel posted...

You know Amazon isn't actually the issuer of the card right? Same with the other companies. They are all held by probably VISA. And calling MasterCard and Discover shitty means you literally have no idea what you're talking about.

Visa doesn't issue any cards afaik. They are just the payment processor. The Amazon Visa card is issued by chase.

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