Dear CCB,
The lower your credit card balances, the better for your credit scores—so paying off credit card balances is a smart move for anyone looking to increase their scores. That said, there are many other factors that can influence scores, and the information in your credit reports is continuously changing as the credit bureaus receive new updates from your lenders.
Allow Some Time Before Checking Your Score
You should allow at least one billing cycle, or about 30 to 45 days, to pass before checking your credit score after a major change like paying off a large credit card balance. That will give time for the payment to be reported by your card issuer and your credit history to be updated.
A large change may also cause your credit scores to dip a bit for a short time. The reason is that a big change like paying off a large credit card balance creates instability in the score. Check again after a month or two, and, assuming nothing else has changed, your scores will likely bounce back up and begin to improve.
Closing Your Credit Card Account Can Hurt Scores
Your credit utilization rate, or balance-to-limit ratio, is the second most important factor in credit scores next to payment history. Utilization rate is calculated by taking the total of all your credit card balances and dividing that number by the total of all your credit card limits. Paying down or paying off a credit card will result in a lower utilization rate, which can raise your scores. However, one mistake some people make when paying off a credit card is believing that they should close the account once the balance is zero.
When you close a credit card account, you eliminate the available credit for that account. If you are carrying balances on other credit cards, closing the account you just paid off will likely cause your overall credit utilization rate to increase, which is a sign of risk. As a result, your credit scores may decrease.
Sometimes, there are valid reasons for wanting to close an account, even if it results in a temporary decrease in scores. For example, if you are in the process of getting out of debt and leaving the account open represents a temptation to accumulate more debt, closing the account may be a wise choice. Or, if you no longer plan to use the account and it has an annual fee, it may not be worth the cost to keep the account open.
However, if you are planning to make a major credit purchase in the next three to six months, it's probably best to leave the account open until the transaction is complete.
What Factors Impact Credit Scores?
It's possible that the reason for the decrease in your score was entirely unrelated to this particular account. For example, if you recently applied for and opened a new account or paid off an installment loan, those changes may have resulted in a decrease in your credit score. Any late or missed payments reported also have a negative impact on your scores.
The best way to find out what in your credit history is negatively impacting your credit score currently is to order your free credit score from Experian. Along with the score, you will receive a list of the risk factors that are affecting your scores the most at this moment.
If you haven't already done so, it's also a good idea to order a current copy of your credit report and review it carefully so you can see exactly how your accounts are being reported.
Paying attention to the individual risk factors listed with your score will help you gain a better understanding of how the information in your report is seen by your lenders so you can begin improving all your credit scores going forward.
Thanks for asking.
Jennifer White, Consumer Education Specialist
FAQs
You Have Late or Missing Payments
Why did my credit score drop 20 points for no reason? ›
The most likely reasons are: your balances increased, you recently closed accounts, you applied for new lines of credit, or there is inaccurate or fraudulent information on your account. If your credit score dropped by 40 points, this is likely due to late payments that continue to compound on past-due bills.
Why has my Experian credit score dropped so much? ›
Credit scores can decrease for a number of reasons, including high balances, missed payments and closed accounts. You can review recent factors that may be affecting your credit score by checking your credit score for free with Experian.
Why is there a 20 point difference in my credit scores? ›
When the scores are significantly different across bureaus, it is likely the underlying data in the credit bureaus is different and thus driving that observed score difference.
Why is Experian score so much lower? ›
The credit scores you see when you check a service like Experian may differ from the FICO scores a lender sees when checking your credit. That's because the lender may be using a FICO score based on data from a different credit bureau. It may also be looking at a different FICO scoring method.
Why has my credit score gone down when nothing has changed? ›
A forgotten account
Another thing that could be pulling down your score is a long-forgotten account. Is there a card somewhere you no longer use, stuck down the back of the sofa, perhaps? If it's in arrears, even by a small amount, this could be hurting you. Take a moment to ensure you're on top of all your accounts.
Does Experian hurt your credit? ›
Doing so will never hurt your credit score and, in fact, checking your Experian credit report can help you protect your credit and promote long-term credit score improvement.
What is the quickest way to raise my credit score? ›
4 tips to boost your credit score fast
- Pay down your revolving credit balances. If you have the funds to pay more than your minimum payment each month, you should do so. ...
- Increase your credit limit. ...
- Check your credit report for errors. ...
- Ask to have negative entries that are paid off removed from your credit report.
10 Ways to Boost Your Credit Score
- Review Your Credit Report. ...
- Pay Your Bills on Time. ...
- Ask for Late Payment Forgiveness. ...
- Keep Credit Card Balances Low. ...
- Keep Old Credit Cards Active. ...
- Become an Authorized User. ...
- Consider a Credit Builder Loan. ...
- Take Out a Secured Credit Card.
For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2022, the average FICO® Score☉ in the U.S. reached 714.
While Experian is the largest bureau in the U.S., it's not necessarily more accurate than the other credit bureaus. The credit scores that you receive from each of these bureaus could be the same, depending on which scoring model they use.
Do banks use Experian or Equifax? ›
The credit score used in mortgage applications
While the FICO® 8 model is the most widely used scoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage: FICO® Score 2 (Experian) FICO® Score 5 (Equifax) FICO® Score 4 (TransUnion)
Is Experian credit score accurate? ›
Credit scores from the three main bureaus (Experian, Equifax, and TransUnion) are considered accurate. The accuracy of the scores depends on the accuracy of the information provided to them by lenders and creditors.
Why is my credit score going down if I pay everything on time? ›
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.
What is a bad Experian score? ›
What is classed as a bad credit score? When it comes to your Experian Credit Score, 561–720 is classed as Poor and 0–560 is considered Very Poor. Though remember, your credit score isn't fixed.
How do I raise my Experian score? ›
This means you should:
- Pay all of your bills on time, especially credit card and loan payments.
- Avoid opening too many credit accounts in a short period.
- Keep your credit utilization rate below 30%
According to FICO data, a 30-day missed payment can drop a fair credit score anywhere from 17 to 37 points and a very good or excellent credit score to drop 63 to 83 points. But a longer, 90-day missed payment drops the same fair score 27 to 47 points and drops the excellent score as much as 113 to 133 points.
How do you find out why your credit score is dropping? ›
It's likely due to one or more of the following scenarios.
- You missed a payment. ...
- You made a large purchase. ...
- You applied for a new line of credit. ...
- You paid off a loan. ...
- You closed a credit card. ...
- Your credit limit was reduced. ...
- There's a mistake on your credit report. ...
- Your identity has been stolen.
There is no set time for how long it will take to see a change in your credit score. You could see a 20-point increase in a month, or it could take longer. Credit scores are updated at least once a month.
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.
