Paying off credit card debt early can have both positive and negative impacts on your credit score:
Positive Impacts:
Reduces Credit Utilization Ratio: When you pay off credit card balances, it lowers your credit utilization ratio, which is the amount of available credit you are using. A lower utilization ratio is better for your credit score.
Improves Debt-to-Income Ratio: Paying off credit card debt reduces the total amount of debt you owe, which can improve your debt-to-income ratio and make you appear less risky to lenders.
Potential Negative Impacts:
Shorter Credit History: If you close a credit card account after paying it off, it can shorten the average age of your credit accounts, which is a factor in your credit score. However, this impact is usually minor and temporary.
Less Credit Mix: Paying off an installment loan like a personal loan can reduce the diversity of your credit mix, which accounts for 10% of your FICO score. However, this is a small factor compared to payment history and credit utilization.
Overall, paying off credit card debt early is beneficial for your credit score in the long run, as it reduces your utilization ratio and debt load. The potential negative impacts are usually minor and short-lived. To maintain a good credit score, continue to make on-time payments, keep credit card balances low, and limit new credit applications
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