Should I Pay Off My Credit Card in Full? | Equifax (2024)


  • It's a good idea to pay off your credit card balance in full whenever you're able.
  • Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
  • If you're under financial stress and can't afford to pay your credit card balance in full, it's best to pay as much as you can each month.

A credit card can be a great way to break large purchases into smaller, more manageable payments. However, carrying a credit card balance from month to month isn't generally the smartest option.

Is it better to pay off my credit card in full?

You may have heard that carrying a balance from month to month is good for your credit scores, but this is a common misconception. In reality, there are a number of reasons you should pay your credit card balance in full whenever you're able.

First, if you carry a balance, you'll pay interest on that amount, which can quickly get expensive. Credit card lenders generally charge an annual percentage rate (APR) ranging from 16% to 25% on purchases made with the card. Plus, most credit card interest is compounded daily, meaning any interest accrued on what you owe immediately becomes part of your principal balance. In effect, you're paying interest on your interest. As time passes, and you incur daily compounded interest, your debt will continue to grow — even if you don't make additional purchases.

Second, the balance kept on your credit card account can impact your credit utilization rate, which is one of the factors used to calculate your credit scores.

What is credit utilization?

Your credit utilization rate—also known as your debt-to-credit ratio—represents the amount of revolving credit you're using divided by the total credit available to you. Revolving credit accounts include things like credit cards or lines of credit where you can reuse credit (up to a predetermined limit) as you pay your balance down. This ratio, generally expressed as a percentage, is one of several factors that lenders may consider when calculating your credit scores.

Most prospective lenders are looking for a debt-to-credit ratio at or below 30%. A lower ratio may be seen as an indication that you're a responsible debtholder, while a higher ratio marks you as a risk and could lower your credit scores.

How credit utilization impacts your credit

When you make a large purchase with your credit card, your credit utilization rate generally increases. As you work to pay off the balance due on the money you've borrowed, the ratio will then usually decrease.

If you're carrying a balance on your credit card from month to month, you're increasing the odds that additional purchases will tip you over the 30% credit utilization rate that lenders like to see. When this happens, it's likely that your credit scores will be negatively affected.

Carry a balance only when you need to

If you're under financial stress and can't afford to pay your credit card balance in full, it's best to pay as much as you can each month. Any amount will help to reduce the amount of compounded interest you'll end up paying.

Find extra dollars wherever you can by making a meticulous budget and trimming your discretionary spending. You can also look for alternatives to using a credit card to fund expensive purchases. For example, you may be able to qualify for a personal loan, which typically has a much lower interest rate and fees than most credit cards.

When to pay off your credit card to increase your credit score?

Paying off your credit card debt each month is one of the most consistent ways to help improve your credit scores. But when in the month is the best time to pay your bill? The answer will depend on your unique financial situation, but here are a few things to consider:

  • Paying ahead of your due date. It's a good idea to pay off your debts before your credit information is shared each month with the three nationwide consumer reporting agencies — Equifax, TransUnion and Experian. This practice helps keep your credit utilization rate low. However, the frequency with which card issuers report information can vary from lender to lender, and many cardholders are unsure of their reporting date. By paying your debt shortly after it's charged, you can help prevent your credit utilization rate from rising above the preferred 30% mark and improve your chances of increasing your credit scores. Paying early can also help you avoid late fees and additional interest charges on any balance you would otherwise carry.
  • Paying your debts multiple times per month. Similarly, making payments toward a large debt multiple times in one month may be beneficial to your credit scores by helping you reduce your credit utilization rate.

Regardless of when you make your credit card payments, the most important thing is to pay what you owe in full before the due date each month.

When to think about a balance transfer

If you're struggling with high-interest credit card debt, you can consider a balance transfer.

A balance transfer shifts your existing, high-interest debt onto another credit card with a better interest rate. Balance transfer credit cards usually have a very low or no interest rate for a short period of time after you open the account. This introductory rate allows you to put more money toward paying down the principal amount of your debt and less toward compounded interest.

However, balance transfers aren't a good choice in every situation and should generally be used only if you are trying to manage significant, high-interest debts. You'll still have to treat your balance transfer credit card like any card in your wallet: Pay as much as you can afford toward the balance each month, and always pay on time.

Be aware of potential downsides, too. For example, some introductory interest rates are only available for a short period of time, and there may be limits to how much of your debt you can transfer to the new card.

Also, when you apply for a balance transfer card, your lender may run a credit check that could result in a hard inquiry on your credit reports. Hard inquiries help lenders track how often you have applied for additional credit accounts and may temporarily lower your credit scores, so it's important to apply for new accounts only when you need them.

Credit cards are a hefty responsibility, and credit card debt is no joke. But armed with the right information, cardholders can borrow — and repay — confidently.

Should I Pay Off My Credit Card in Full? | Equifax (2024)


Should I Pay Off My Credit Card in Full? | Equifax? ›

It's a good idea to pay off your debts before your credit information is shared each month with the three nationwide consumer reporting agencies — Equifax, TransUnion and Experian. This practice helps keep your credit utilization rate low.

Is it better to pay off a credit card in full? ›

Bottom line. If you have a credit card balance, it's typically best to pay it off in full if you can. Carrying a balance can lead to expensive interest charges and growing debt.

Will my credit score go up if I pay off my credit card in full? ›

Paying off your credit card balance every month is one of the factors that can help you improve your scores. Companies use several factors to calculate your credit scores. One factor they look at is how much credit you are using compared to how much you have available.

What is the 15-3 rule? ›

The 15/3 rule, a trending credit card repayment method, suggests paying your credit card bill in two payments—both 15 days and 3 days before your payment due date. Proponents say it helps raise credit scores more quickly, but there's no real proof. Building credit takes time and effort.

Do credit card companies like when you pay in full? ›

While the term “deadbeat” generally carries a negative connotation, when it comes to the credit card industry, you should consider it a compliment. Card issuers refer to customers as deadbeats if they pay off their balance in full each month, avoiding interest charges and fees on their accounts.

How to raise your credit score 200 points in 30 days? ›

How to Raise your Credit Score by 200 Points in 30 Days?
  1. Be a Responsible Payer. ...
  2. Limit your Loan and Credit Card Applications. ...
  3. Lower your Credit Utilisation Rate. ...
  4. Raise Dispute for Inaccuracies in your Credit Report. ...
  5. Do not Close Old Accounts.
Aug 1, 2022

Why did my credit score drop 40 points after paying off debt? ›

It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.

How to get 800 credit score? ›

Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.

Why did my credit score go down when I paid off my credit card? ›

Credit utilization — the portion of your credit limits that you are currently using — is a significant factor in credit scores. It is one reason your credit score could drop a little after you pay off debt, particularly if you close the account.

Why does my credit score go down when I pay in full? ›

you have a high credit utilization ratio

you might have paid your bills on time, but you also need to check the balance you carry on each credit card. if you have a high credit utilization ratio, it can cause a drop in your credit score. you should check your credit limit usage on both an overall and per-card basis.

Is zero balance on credit card bad? ›

To sum things up, the answer is no, it isn't bad to have a zero balance on your credit cards. In fact, having a zero balance or close-to-zero balance on your credit cards can be beneficial in many ways.

Is it bad to have a lot of credit cards with zero balance? ›

Keeping a low credit utilization ratio is good, but having too many credit cards with zero balance may negatively impact your credit score. If your credit cards have zero balance for several years due to inactivity, your credit card issuer might stop sending account updates to credit bureaus.

Is it better to leave credit cards open with zero balance? ›

In general, it's better to leave your credit cards open with a zero balance instead of canceling them. This is true even if they aren't being used as open credit cards allow you to maintain a lower overall credit utilization ratio and will allow your credit history to stay on your report for longer.

When to pay off a credit card to avoid interest? ›

Paying off your monthly statement balances in full each month is the path to avoiding credit card debt. As long as you pay off your statement balance in full, your grace period kicks in and you can make purchases on your credit card without paying interest until the next statement due date.

Is it good to pay off a credit card fast? ›

Rule #3: To Improve Credit Score, Pay Sooner

While some experts may suggest keeping your utilization rate below 30%, there is no hard-and-fast rule—the lower it is, the better. Credit card companies report your balance to the credit bureaus every month, typically at the end of each billing cycle.

What happens if I go over my credit limit but pay it off immediately? ›

Going over your credit limit usually does not immediately impact your credit, particularly if you pay down your balance to keep the account in good standing. However, an account that remains over its limit for a period of time could be declared delinquent, and the issuer could close the account.

How to pay off $10,000 credit card debt? ›

7 ways to pay off $10,000 in credit card debt
  1. Opt for debt relief. One powerful approach to managing and reducing your credit card debt is with the help of debt relief companies. ...
  2. Use the snowball or avalanche method. ...
  3. Find ways to increase your income. ...
  4. Cut unnecessary expenses. ...
  5. Seek credit counseling. ...
  6. Use financial windfalls.
Feb 15, 2024

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