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In this article:
- Should You Cancel a Credit Card After Paying It Off?
- How to Continue Using Your Credit Card Responsibly
- Building and Maintaining Good Credit
Bravo! You've paid your entire credit card balance. So when should you expect your credit score to reflect that? Reducing card balances improves your credit utilization ratio, which is an important scoring factor, but score calculations can't consider paid balances until your credit reports are updated.
Card companies typically send monthly updates to the major credit bureaus after the end of your billing cycle. Depending on where you are in that cycle, your payment may not be reported for weeks. You may see some difference as quickly as a few days or weeks, but it can take months for your score to fully adjust to a change in your card balances.
Allow a few billing cycles—one to two months—for the credit card company to report your new information and for credit scoring models to see that you aren't immediately taking on new debt. Once your information is updated and a new score is calculated, you may see an increase in your credit score.
Should You Cancel a Credit Card After Paying It Off?
Once your card account is paid, you might feel tempted to cancel the card to prevent yourself from accruing another high balance. Canceling your card may not be the best idea, though. An established credit account helps your credit score in a few ways, even if you don't use the card frequently.
One major reason not to cancel a credit card is that your card accounts contribute to your total available credit, which affects your credit utilization ratio. To calculate this ratio, divide your total credit card balances by your total available credit. Your credit utilization is one of the most important factors in your FICO® Score☉ , and a ratio of 30% or higher can affect your scores negatively. Keeping your paid-off account open is a way to help keep your overall credit utilization down.
Another reason is that a credit account you've had open for a while helps increase the average age of your accounts and the length of your credit history, which accounts for 15% of your FICO® Score.
Is it ever a good idea to cancel a card? You might consider it if, for example, you're paying a high annual fee without making use of the card's rewards or benefits. You might also want to replace a card that has a high interest rate or too few rewards or benefits. Before you cancel, contact the card issuer and explain your concerns. They may be able to move you to a different card that doesn't have an annual fee and is better suited to your needs, or help you figure out how to lower the interest rate on your current card.
How to Continue Using Your Credit Card Responsibly
Going forward, the best way to keep the momentum going is to use your credit cards responsibly. That means keeping your spending and debt under control, whether you decide to use them regularly and pay off your balances every month, or keep your cards open but hidden away (some cardholders go as far as freezing their cards in a block of ice).
A few tips to consider:
- Use your credit card regularly. Regularly using your credit card demonstrates your ability to manage debt well and ensures the account isn't closed due to lack of use. A monthly bill as small as a streaming service payment can keep your account open and reflect positively in your credit.
- Always pay your bill on time. As a safeguard, consider setting up your account to make automatic minimum payments right before your due date—just make sure you have enough in your bank account to cover the payments. Payment history accounts for more than a third (35%) of your FICO® Score.
- Lock cards you don't plan to use. Some card companies let you turn your cards "off" through their mobile app as an added security measure. This keeps the account open, but can protect you from credit card fraud that could drive up your balances.
- Make a payoff strategy before you spend. Using your credit cards may earn you rewards or other benefits like extended warranty protection, but these perks lose their luster if you have to pay interest on a balance you're struggling to pay off. Before you spend, establish a game plan for paying your purchase off over a reasonable period of time.
Building and Maintaining Good Credit
Paying off a credit card is a milestone to celebrate, as is the bump to your credit score that could result. You can more closely track the changes to your credit scores—and keep an eye on your score moving forward—by signing up for free credit monitoring with Experian. You'll have access to your Experian credit score and report and can set up alerts to let you know when changes occur to your credit file. Paying down debt, monitoring your credit and using your credit wisely will all help set you on a path toward building and maintaining good credit.
