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If we pay off our loan and credit cards in time, our score won’t be affected negatively – that’s how the common thinking goes but one needs to think beyond that.

Say for example, you have a credit card debt of $3000 and you have been late only once. However, you are able to pay off the credit cards after a year or so thinking that this will surely enhance your score. But instead of improving your credit, it can hurt your score.

Just take a quick look at what hurts your score and what doesn’t.
What hurts your score…

• You may have $3000 on a credit card which has low credit limit. So, what you owe doesn’t matter as much as it’s value in comparison to the credit limit.
• Late payment even if it is for once, although the damage it can do lasts for a month if it’s under 90 days late.

What doesn’t hurt your score…

• Owing $3000 of credit card debt
• Paying off the entire balance even though it takes a year

Considering the example,

If you close the account after paying off the entire balance within a year or so, that too, after making a late payment, then that’s what can affect your credit score and hence it will drop down. The effect can be even worse if:

• The account is the one with the highest credit limit.
• It is the oldest as recorded on your credit report.
• It’s the one and only credit card account you have

Closing a credit card doesn’t help in raising your score. Rather, you get extra points for keeping the credit cards open for quite some time and this surely upgrades your score. Moreover, accounts having high credit limit and those which are managed well are helpful in improving your score.