When you finally finish paying off your credit cards, it's natural to wonder when you'll get the big payoff of a better credit score. The reality is, it doesn't happen right away. How long it takes for your credit score to improve depends largely on how well you've managed your debt over time.
TL;DR (Too Long; Didn't Read)
While paying off your credit card is a huge accomplishment, it may or may not have a positive affect on your credit score.
Credit Utilization Ratio
Obviously, your usage of available credit will fall to zero once your credit cards are paid off. That's a bonus for you since credit usage makes up 30 percent of your score. Of course, if you did this with a consolidation or home equity loan, your score won't improve at all. In fact, it would actually take a slight dip because you opened a new line of credit.
Credit history is the most important part of a score, comprising 35 percent of your final figure. The reason for this is obvious -- it's the best predictor of your future payment status. The thinking is anyone can make a lot of payments to get a zero balance, but it won't erase a history of missed payments. It'll take years of clean payments, or not using a credit account after it's been zeroed out, to build the score up again.
Credit Score Updates
It'd be nice if credit scores were recalculated the minute a final payment clears. In truth, the card companies usually report to the three major credit bureaus once a month. Therefore, it may take up to 30 days for any actual improvement to show. You're still not in the clear since these reports aren't guaranteed to be perfect. It's up to you to check each bureau for updates and let them know about any mistakes. If you see a mistake, you have the right to dispute the error in writing. The credit reporting company is required to investigate the claim and remove the item if it is, indeed, an error.
Credit Score Improvement
Credit scoring agencies are intentionally vague regarding exactly how long it takes to improve your credit. What is known, though, is the bureaus keep negative information such as late payments, public records and foreclosures on your credit report for seven years. The impact of negative information diminishes over time, which is great if you've behaved yourself after a few minor slip-ups. If you have recent or excessive negative marks on your report, it'll take a long time for your score to improve even if your balances are zero.
Bryan Berg is a freelance writer based in Long Island, NY. He has been writing since 2002 about personal finance, sports and parenting. He is a contributing writer to eHow Money and LIVESTRONG.COM. He has a Bachelor of Arts in marketing from Hofstra University.