Does your credit score go down when you make a payment?

The Credit Score Conundrum: Does Paying Bills Actually Hurt Your Score?

The relationship between paying bills and your credit score isn’t always straightforward. While the popular wisdom dictates that responsible payment behavior is crucial for a healthy score, the nuances are often overlooked. The simple answer to the question “Does your credit score go down when you make a payment?” is generally no, but the reality is more complex than a simple yes or no.

The primary driver of a good credit score is responsible credit management. This includes paying your bills on time and keeping your credit utilization low. Paying down debt directly addresses the latter. When you make a payment, you reduce your outstanding balance. This, in turn, lowers your credit utilization ratio – the percentage of your available credit that you’re using. A lower credit utilization ratio is viewed favorably by credit scoring models because it signals responsible spending habits. This positive impact can be significant, potentially boosting your score noticeably.

However, there’s a potential caveat. If you choose to close a credit account after paying it off completely, you might see a temporary, usually minor, dip in your credit score. This is because closing an account reduces your total available credit. While your utilization ratio might improve temporarily due to the lower balance, the decrease in available credit can negatively affect your credit mix (the types of credit you have) and the length of your credit history (the average age of your accounts). These factors, while less impactful than credit utilization, are still considered by credit scoring algorithms.

The impact of closing an account is typically small, especially if you have other accounts in good standing. The positive effects of consistently paying bills on time and keeping your credit utilization low usually outweigh the potential negative effects of closing an account, provided you don’t close too many accounts simultaneously.

Therefore, while making payments generally benefits your credit score, the decision to close an account afterwards requires careful consideration. If you’re concerned about a potential slight dip, leaving the account open (even with a zero balance) might be a better strategy, especially if the account is old and has a good payment history. Focus on responsible credit management – consistently paying on time and keeping your credit utilization low – as the most effective way to maintain and improve your credit score. Don’t let the fear of a minor, temporary dip deter you from the positive impact of consistently responsible financial behaviour.