Can Paying Off Debt Hurt Your Credit Score? The Truth About Credit Utilization

DIY Fix My Score
Jul 16
2 min read

Updated: Sep 4

It may sound strange, but paying off debt the wrong way can actually lower your credit score temporarily. Let’s explore why this happens, what credit utilization really means, and how to manage debt in a way that improves—not hurts—your score.

What Is Credit Utilization?

Credit utilization is the percentage of your available credit you're using. If you have a $1,000 credit limit and carry a $300 balance, your utilization is 30%.

This factor makes up about 30% of your FICO score, making it one of the most important metrics in determining your credit health. Keeping utilization low signals to lenders that you're managing credit responsibly.

2 Ways Paying Off Debt Can Lower Your Score

Promotional blog graphic from DIY Fix My Score featuring the headline ‘Can Paying Off Debt Hurt Your Credit Score?’ and subheading about credit utilization and smart debt strategies.

1. You Close a Credit Card After Paying It Off

Closing a card reduces your total available credit. If you still have balances on other cards, your credit utilization ratio increases, which can lower your score.

2. You Pay Off an Installment Loan Early

Paying off a car loan or personal loan ahead of schedule might reduce your credit mix and total account history—factors that can slightly impact your score.

How to Pay Off Debt the Smart Way

Follow these tips to boost your credit score while reducing your debt:

✅ Keep paid credit cards open, unless they have high annual fees
✅ Maintain credit utilization below 30%
✅ Make small purchases and pay them off each month
✅ Avoid maxing out your cards—even temporarily
✅ Use a credit score tracker to monitor your progress over time

The Long-Term Win

Even if your score dips slightly at first, paying off debt is a smart move. You’ll save on interest, reduce financial stress, and build a healthier credit profile.

To get the most out of your debt payoff strategy, pair it with the DIY Fix My Score Kit — loaded with dispute templates, score trackers, and legal tools to help you clean up your credit the right way.