Credit Card Score

Will my credit score be harmed if I pay-off my credit cards and never use them again?

I was just wondering if I paid off my credit cards and never used them again does that hurt my credit??

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Bills.com Team
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By Bills.com Team
October 27, 2010

Highlights


  • Not using your credit cards will not harm your credit score.
  • Using cards occasionally and paying the balances will boost your score.
  • Five factors weigh in on your credit score.

It will not harm your credit score to never use your cards again, but your letting all of your credit cards languish indefinitely will not help boost your credit score. Dust-off one of your cards every other month and use it for a transaction. Pay the bill before the due date. A consistent payment history will slowly boost your credit score to lofty heights. Why? Read on to learn how credit scores are calculated.

Your credit score varies based on the information reported about your financial transactions and other information the consumer credit reporting agencies collect about you each month. Knowing what factors the credit reporting agencies use to determine your credit score can give you the tools to improve your scores. Credit reporting agencies — Equifax, Experian, and TransUnion — weigh these five factors:

  • Payment history (Payments on time?)
  • Length of time accounts were open
  • How much of the credit line you use
  • Your mix of credit accounts
  • Number of accounts opened recently

See All About Your FICO Score and Understanding Your Credit Score to learn the relative importance of each of these five factors, or read the summary of the five below.

Five Factors That Create a Credit Score

1) Payment history, which counts for approximately 35% of your score, is the most heavily weighted factor used in calculating your credit score. Consistently paying your bills on time has a positive influence on your score, while late or missed payments will hurt you in this area. If you have delinquent payments, the older the delinquency the less the negative impact on your score will be. Collection accounts and bankruptcy filings are also taken into consideration when analyzing your payment history.

2) Total debt and total available credit, which counts for about 30%. This section looks at how much debt you have compared to the total available credit on your accounts. If all of your accounts are maxed-out, you will be considered a poor credit risk, because it appears that you are struggling to pay off the debt you have already incurred. If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score. The score calculation also looks at these two factors independently. Having too much available credit, whether you have used it or not, could hurt your credit score, as statistical studies have shown that people with excessive amounts of available credit are a higher credit risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so best tip is to use credit conservatively and to keep your debt to credit limit ratio low.

3) Length of positive credit history, which counts for about 15%. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently responsible about making your payments.

4) Mix of types of credit, which counts for approximately 10%. Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact.

5) The number of new credit applications you have completed recently, which accounts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

4 Comments

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  • 35x35
    Apr, 2012
    Todd
    My credit report has scores ranging from 627 to 632. The only thing that has changed since my last score of 674 for TransUnion and 690 for Equifax was that I received an an American Express Gold Card and Orchard Bank credit card with a $500. I previously had not credit cards. Since receiving these my score has plummeted. It was as low as 580ish because I was maxing out the Orchard Bank and paying it off a day before it was actually due in hopes of showing a strong payment history! That plan was not successful. Once I resolved this by keeping this card at $0 my score went up 50 points. Any negatives on my report date back to 2006 so I hope this fall off in the next year or so. Is this low credit line hurting my score substantially? How long is it going to take to get above 700?
    0 Votes

    • 35x35
      Apr, 2012
      Bill
      A low credit line will not harm a person's credit score. A high credit utilization, as your story pointed out, will harm a person's credit score. Go ahead and use the credit cards you have, but keep the utilization below 50%. By the way, I made up the 50% figure. No one outside of Fair Isaac & Co. or VantageScore knows exactly at what point credit utilization become too high and starts harming a person's score. My guess, note that word choice, is credit utilization below 50% is not harmful. I welcome any evidence or anecdotes from readers on this issue.

      A credit score is a predictive statistic, and is meant as a tool to help potential lenders decide if you will repay a loan. I liken a credit score to physical fitness. Consistent, positive actions create results. See the Bills.com article Short Sale, Foreclosure & Your Credit Score for a discussion of how long it takes to build a credit score after a negative event.
      0 Votes

  • 35x35
    Mar, 2012
    Kimberly
    I have accounts with two free credit score websites. One says an old account is a negative account the other says that if I close it that my score will go down. The account is an old credit card account that I made late payments to, but paid off. They did not close the account on me but "suspended" it, but the only way to use it is to reapply from the beginning. Should I close it? Is it hurting my score? How do I find out for real? Thank You
    0 Votes

    • 35x35
      Mar, 2012
      Bill
      If the account in question is your oldest, closing it will reset your credit history start date to the next oldest open account. If the second-oldest account is significantly newer, then yes, closing your oldest account will have a negative impact on your credit score. Without knowing more about your credit history, it is difficult to say more.
      0 Votes