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What Happens to My Credit Score When I Pay Off All My Debt?

August 23, 2016 | 10 Comments

FICO Pie Chart
What happens to my credit score when I pay off all my debt?

This question came up in the Our Debt Freedom Family Facebook group recently, and I know a lot of people have the same question when getting out of debt.

So in this article we’re going to be answering the following question:

“How does being debt free affect your credit? We’ll be paying off our debt soon. When we do, we’ll keep our credit cards open, but what will my credit score look like when all the other loans are closed?”

A similar question was asked last year about how your score is affected when you close out one of your old credit cards. I wrote an article in response, and in that article, I went into great detail about how your credit score is calculated and how closing out the card affects your score.

To summarize, the most commonly used credit score is calculated using software created by the Fair Isaac Corporation, also known as FICO. Your FICO® score is determined and weighted by the following five factors:

  • Payment history — approximately 35%
  • Amounts owed — approximately 30%
  • Length of credit history — approximately 15%
  • New credit — approximately 10%
  • Types of credit in use — approximately 10%

If you close out all of your cards, pay off all of your loans, and never use credit again, eventually, the reporting agencies won’t be able to provide a score for you.

However, if you leave your cards open and use them once in awhile and keep them paid off, your credit score is likely to be very high.

In fact, I recently interviewed Christine Odle who paid off $500,000 worth of debt (house and everything) since 2009. She said that she has one credit card that she pays off several times each month, and her score is over 800.

[bctt tweet=”What happens to my credit score when I pay off all my debt?” username=”MonicaRLouie”]

My husband and I also have one credit card that we use and pay off each month (in addition to our mortgage) and our credit scores are over 800, as well. We’ve definitely seen our credit scores increase as our debt total has decreased over the past few years.

My question to anyone else concerned about their credit score is this —

Once you’ve paid everything off, do you plan to use credit again in the future? If not, then it probably won’t have much affect on your life. But if you do, it might be worth using a credit card and paying it off every month to keep that good payment history on your record.

Don’t Pay To Check Your Credit!!!

You used to need to pay to check your credit score.  Don’t do that!!  Instead, get your credit score for free.  Here are four completely free ways to check your credit score.

Annual Credit Report. Federal law says the three credit reporting bureaus must provide customers with a free credit report once per year. Just go to www.annualcreditreport.com and sign up.

Credit Karma. Credit Karma will give you your credit score for free. It also allows you to access data in your credit report for free at any time, you can check your payment history, balances and credit inquires letting you keep an eye on your credit. Sign up here.

Chase’s Credit Journey. Chase will not only provide you access to your credit score, but also gives you a set of great tools to improve your credit score.  It is 100% free to sign up.

Lexis Nexis. Another way to get a free credit report is to get your Lexis Nexis file. The report will have personal information gathered from public records and third party sources. You can get a copy of what information about you they have on file by sending in an application with your ID.

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Keep moving forward toward your goals. You really can live the life you dream about!

Filed Under: Credit, Get Out of Debt, Monica's Two Cents, Video

How to Recover from a Setback on Your Debt Free Journey

January 5, 2016 | 14 Comments

The concern that I hear the most from people who are trying to pay off debt is how to recover from a setback.

Maybe it’s happened to you.

You get all fired up about paying off debt, take the time to create your debt freedom plan, figure out which debt you’re going to pay off first, create a budget, and start to throw every available dollar toward your debt.

This works fine for a month or two, or maybe just a week or two, but then something comes up to throw your plan off course.

[Read more…]

Filed Under: Get Out of Debt, Inspiration, Monica's Two Cents

Where To Prioritize A Personal Loan in Your Debt Snowball

September 22, 2015 | 22 Comments

Have you ever had a personal loan from a friend or co-worker?

I sure have.

It’s a situation a lot of people have been in, and it has the potential to destroy relationships.

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Filed Under: Get Out of Debt, Monica's Two Cents

How to Get Started Paying Off Debt When You’re Behind on Your Bills

July 3, 2015 | 16 Comments

Mike (my husband) and I had the honor of being interviewed on the His and Her Money Podcast recently! In the interview, we shared the steps we took to pay off more than $85,000 of debt in 20 months.
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Filed Under: Boosting Income, Budgeting, Get Out of Debt, Getting Started, Monica's Two Cents

How to Host a Successful Garage Sale

June 2, 2015 | 23 Comments

It’s that time of year again!

The weather’s getting warmer, the kids will be out of school soon (if they’re not already), and garage sales are popping up in every neighborhood.
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Filed Under: Boosting Income, Monica's Two Cents

How We Cut Our Grocery Spending in Half

May 15, 2015 | 23 Comments

It’s time for another installment of Monica’s Two Cents where I answer YOUR questions!

If you have a question for me, I would love to hear it. You can fill out the form on the Contact page or send me a message via Facebook.

Now, let’s dive in to today’s question.
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Filed Under: Budgeting, Monica's Two Cents, Saving Money

55 Frugal Date Ideas for Couples on a Budget

April 24, 2015 | 22 Comments

I recently started a new series on the blog called Monica’s Two Cents where I answer questions from my readers.

A few weeks ago, I kicked off the series with a question about what to do with your old credit card.

If you have a question for me, I would love to hear it. You can fill out the form on the Contact page or send me a message via Facebook or Twitter.

[Read more…]

Filed Under: Couples, Monica's Two Cents, Saving Money

Should I Close Out My Old Credit Card I Don’t Use?

March 20, 2015 | 13 Comments

The other day I received an excellent question from a reader, and I thought it would be best to answer the question publicly so that everyone could benefit.

This gave me the idea to make this question and answer format a regular series on the blog.

So today is the first installment of Monica’s Two Cents!

[Read more…]

Filed Under: Credit, Monica's Two Cents

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