AARP Expert Martin Booker answers this question during a March 2020 online event, Ask The Expert: Making Smart Decisions About Credit:

I paid off 4 credit cards in the last three months. My credit score dropped. Will it get higher?
-by FrancesO708191

 

Credit card debt is some of the highest interest rate loans that a person can possess. Paying off those credit cards will allow you to save more towards your future, instead of paying for your past. Your score may have dropped because you have no debt utilization from the credit cards at the moment. Once you paid the loan off you have no utilization which can cause a slight drop in your score before it begins to rise again. It is a good idea to keep the cards paid off and if you have other loans, the activity from those loans being paid on time will assist in pulling your score back up. If you do not have any other loans that are being paid and reported to the credit bureau, you can use the following strategy to keep loan activity without going further in debt or paying interest:

 

  1. Link one bill or pay for a necessity (food or transportation) with your credit card each month
  2. When you receive the credit card bill, pay the full balance each month to avoid paying interest.
  3. Be careful not to overspend because you’re using a credit card. Use only what you have enough cash to pay off in full. Usually by paying a bill that you’re already schedule to pay, you can keep from overspending.
  4. If carrying your credit cards will lead to more spending, do not carry your credit card with you. Use it then put it in a safe place away from yourself.

You do this because 35% of your score is factored by paying your bill on time and another 30% is factored by keeping your debt amount low. So, using this method will allow you to get the activity you need while not carrying a balance on your loans which will cause you to pay interest.

 

To view "Ask The Expert: Making Smart Decisions About Credit" in its entirely, click here.

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