Once you take the steps to pay off your credit card debt, you want to ensure your credit rating reflects your efforts. Your credit score affects more than just your ability to buy a home or open a charge account. Credit impacts many aspects of daily life, from obtaining car insurance to getting a job.
Creditors Reporting to Bureaus
Creditors are required to report to the credit bureaus at least once a month, but some report more often. The exact date a creditor reports varies. Even if you call the credit card issuer to inquire about the date, the creditor doesn't have to disclose the information. Experian, one of the big credit bureaus, states that most creditors submit updated information at the end of the billing cycle. Credit bureaus strive to keep files as accurate as possible. Your credit report typically reflects updates within 30 days.
Impact on Your Credit Score
Paying off your credit card debt can boost your credit score. Total debt and available credit account for 30 percent of your FICO score, according to MyFICO. When your credit cards are maxed out, your credit score declines since you are using too much of your available credit. Keeping a low debt-to-income ratio is ideal. If you are paying off an old debt, the balance will be entered as zero. However, any late or missed payments will also still appear on the account. After seven years, negative account information is removed.
Keeping the Account Open
After paying off a credit card, you don't need to close the account. In fact, if you've had the credit card for a while, closing the account can lower your rating. Established accounts are scored higher than new accounts. To keep from getting yourself in over your head, you don't need to chop up your credit card as they do in the movies. Once the card is paid off, keep it active by charging small amounts you can afford to pay within the month to avoid accumulating interest.
Monitoring Your Credit Report
Monitoring your credit report allows you to check for discrepancies and dispute errors. If you paid off a credit card and the balance is incorrect, you can file a dispute with the credit bureau to have the information updated. You can request a free copy of your credit report from Equifax, Experian and TransUnion each year by visiting annualcreditreport.com (see Resources).
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