Bull vs Bear: What It Means and How They're Different
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What happens when you paid off your credit card debt?

Bull vs Bear: What It Means and How They’re Different

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It’s been a long time coming, but you’ve finally paid off your credit card debt. You’re feeling pretty good about yourself. Maybe even a little smug. But what happens when someone pays off their credit card debt? Let’s find out!

I paid off my credit card debt – now what?

Your credit score will increase by over 100 points. Your current balance is the most important factor in your credit utilization rate, so as soon as that zero balances out of the equation, you’ll see a big jump. The higher your available credit and lower balances are, the better it looks to lenders.

Credit utilization ratio is the percentage of credit card debt as compared to total available credit. For example, if you have a $1000 limit on your two cards and one has a balance of $500 while the other has no balance, then your aggregate utilization ratio would be 50%. Lowering this number helps increase FICO scores.

Credit score (a.k.a. FICO® Score) is a number that rates your credit worthiness. Having a higher score means you are more likely to be approved for loans, get better interest rates on loans and credit cards, or qualify for other types of financing (such as car leases).

The next thing you’ll notice is that your monthly payments will go down. If you were paying $500 a month to pay off the debt, and now owe nothing, that’s an extra $300 in your pocket each month for things like groceries or rent. Now we’re talking!

If taking care of credit card balances was causing irreparable damage to your budget, as in you didn’t have enough money left over each month for groceries or rent, then this is a huge relief.

Now is the time to find a better card

When you’ve paid off your debt, it’s time to start looking for a better credit card provider. You might be paying an annual fee or high interest rates on your current cards that can’t compete with new companies in the industry who are offering significant discounts and rewards programs.

Since your higher credit score, or FICO®, means less risk for lenders, there’s a good chance you may qualify for a better offer now than you did before. Credit card companies are willing to offer the best rates on credit cards and loans to those with a high score, because they know that they’ll be repaid.

Usually, the higher your score, which is determined by factors such as payment history and length of credit history, the better in terms of what you can qualify for. You might see lower rates from companies like Capital One if you pay attention to your credit score.

Can i use my credit card after paying off any outstanding debt?

It’s not a good idea to use your credit card, even after you’ve paid off the debt. If it’s been awhile since you used it in any capacity, there might be some benefits of using the account to establish new habits or build up your credit score again.

The problem with using the account is that it can be too easy to go in debt again, even if you just spend a few hundred dollars. If this happens, then your credit score will likely take another hit and you’ll find yourself paying more interest on any new purchases because of the high utilization ratio.

What happens if I pay off my debt before my minimum payment date?

If you remove one or more payments from autopayment on time before they go through for any given month then this can impact your finances significantly: It could result in low monthly income due to insufficient funds because of missed payments; it might result in an overdraft fee at bank whose account was declined when their paycheck didn’t come in; and there’s a chance that you might get hit with a late fee.

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