As a general rule, paying down your credit cards should help your credit score, not hurt it. The less debt you’re carrying, the better. However, paying balances all the way down to zero could produce an indirect negative effect if the card goes unused or the account is closed. There are some important things you may want to keep in mind:

The Importance of Utilization
The balances you carry on your credit cards are an important element of your credit score. Credit scoring formulas look at not only how much money you have in credit card debt, but also at how much of your available credit you’re using – a figure known as your credit utilization ratio. If you have $1,000 in credit card debt, for example, and your credit cards have a combined limit of $10,000, then your utilization ratio is only 10 percent. But if your combined credit limit is just $2,000, your ratio is 50 percent.

Paying Down Balances Is Good
A high utilization ratio, often defined as one above 30 percent, is considered a sign of credit risk, as it suggests that you may be experiencing financial trouble. When you pay down your credit cards, your utilization ratio gets smaller, the perceived risk declines, and that can lead to a higher credit score. Exactly how much your score might improve, though, is impossible to predict, since everyone’s finances are different, and credit scoring models differ, too.

Canceling an Inactive Account
Some consumers choose to close their credit card account soon after paying off their debts but it’s not always the best course of action. If you take this route, your total available credit limit will decline, which will raise your utilization ratio, and that can hurt your score. According to Experian’s Maxine Sweet, closing the accounts will likely have a greater negative impact on your credit scores than leaving them open.

Ceasing Credit Card Use
The potential for trouble arises under a specific circumstance: if you pay down your card balances to zero and then stop using your cards entirely. Instead, learn how to manage your personal credit usage and make it habit to pay your balance on-time and in full. If you’re unhappy with your current credit card carrier, you can always choose to open a different credit card account and regularly use that card instead.
Consumers looking to learn more about choosing the right credit card are encouraged to visit the freecreditscore.com™ Savings Center, which provides a comparison of some of the most popular credit cards available.

About the Author
Cam Merritt has been a professional writer and editor since 1992, specializing in articles about personal finance and law. He has contributed to USA Today and the Better Homes and Gardens family of magazines and websites. Merritt has a Bachelor of Arts in journalism from Drake University.