Reader Question: Why Did Paying Off my Credit Card Drop my Score?

Reading and responding to email credit questions can sometimes be like playing detective. A little reading between the lines can be required to decipher exactly what is really going on. Here's a question we received from Carolina:

I read an answer online from someone, and I wanted to know if it was true. If one owes $2,000.00 dollars on a credit card and was only late once, and then pays it all off in full after a year and a month,  is it true that instead of increasing your score it lowers it? If so why is that? Shouldn't it be the opposite? So is it bad to pay in full? Why?

This a classic example of someone getting not quite the full story about how credit works. There are too many factors in Carolina's email. Most of which don't hurt credit scores and one which does. Let's break it down:

Things that don't hurt credit scores
- Owing $2,000 on a credit card
- Paying off a credit card balance in full
- Having a card open for a year and a month

Things that can hurt credit scores
- Owing $2,000 a credit card that has a low limit or if you don't have more than $20,000 in total credit limits
- One late payment, although the damage only lasts for one month if it was under 90 days late

The culprit:
- Closing the account

In Carolina's situation, it was only the fact that she closed the credit card that really mattered. The balances, late payment and payment in full doesn't really have a negative impact on her credit score.

Closing a credit card, in any scenario, will always be a negative for your credit. The damage is worse if the account was one of the oldest on your credit report, the only account you had or the account with the highest credit limit.

Closing a credit card account will never help to improve your credit score.

Credit scores give extra "points" for consumers who keep their credit cards open for a long time, who have high credit limits and who have a healthy record of using credit. You are less of a risk to lenders and creditors if you are currently showing that you can manage and pay credit cards on time.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.