It’s no shocker that paying down credit card debt can improve a credit score.
But a deeper look into the numbers reveals the financial benefits of paying down plastic debt may amount to more than you think.
The latest data comes from a combined study on credit card debt and credit scores from LendingTree and CompareCard.
In it, study researchers from both companies sampled data from more than 5,000 My LendingTree users who paid off between $500 and $550 in credit card debt over a one-month period.
Researchers then tracked the changes in their credit scores to produce an outcome that reinforces the notion of credit card debt repayment and higher credit scores – and then some.
On average, paying off $500 in credit card boosts credit scores by seven points over one month. But most notably, lowering utilization ratios provides the most upside to credit scores, the report states.
In fact, borrowers who substantially lower their utilization rate see considerable credit score gains.
“Consumers see average credit score increases of 19 points when they lower their utilization rate by 10% or more by paying off $500 in credit card debt,” the study notes. “Those 19 points added to a credit score could mean the difference between being approved for a credit card with a low APR and great rewards — or not.”
In contrast, the Lending Tree/CompareCards report states that cardholders whose utilization rate increased, either through additional debt or a reduction in credit, saw effectively no credit score changes. The drop, in fact, is less than one point, on average.
Consumers with fair to very poor credit scores have the most to gain from paying off debt. The study data shows that “borrowers with credit scores between 300 and 639 can increase their scores by an average of more than 13 points by paying off $500 in credit card debt.”
Additionally, financial consumers with less credit card debt see greater credit-score gains. “Borrowers with credit card balances between $500 and $1,500 see average credit score gains of just over 9 points when paying down $500 in debt,” the study notes.