Ask The Money Coach

Q: I have about 6 credit cards that are maxed out. I recently got some money so I was wondering if it is better to pay off a couple of cards or pay down the balance on every card?

A: From a credit scoring standpoint, it would be better to pay off a couple of cards entirely – leaving them with zero balances. The reason this is a better strategy than paying some money on all the cards is because the FICO credit scoring model looks at the total number of credit card accounts you have, and analyzes many data points about those accounts.

For example, FICO will assess how many of your cards carry a balance. It’s better for you to have 2 or 3 cards with no debt on them, as opposed to having 6 cards that all have balances.

Read: Are You Suffering From Debt Disease?

Additionally, even if you paid down the balances on all 6 cards, if you spread that money out, you might not be able to get all your balances below 50% or 60% of their credit limit. In general, when you’ve charged 50-60% of your credit limit, the impact on your credit score won’t be much different than if you charged, say, 70% of your available credit. Though every bit of debt you pay off can help with your credit score. And needless to say, eliminating a credit card balance altogether means that’s one less bill you have to worry about each month.

So overall, it’s better to simply use the money to knock out a couple of credit card balances. Just don’t go back out there and charge up more debt once you have zero balances!  Good luck.

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