A credit report records information about your borrowing, including credit card balances, payment history, credit limits, account openings and applications for credit. Lenders use this information alongside your income, spending and other affordability data when assessing an application. A credit score is a summary produced by a credit reference agency, while the underlying report contains the detailed information used to calculate it.
Paying off credit card debt can reduce your credit utilisation, which is the proportion of available credit currently being used. For example, a £1,500 balance on a card with a £2,000 limit represents 75% utilisation. Reducing the balance to £500 lowers utilisation to 25%. Lower utilisation can be viewed more favourably by lenders, although each lender uses its own criteria.
Credit reports may not update immediately after a payment. Card providers generally send information to credit reference agencies on a regular reporting date, so the reduced balance can take several weeks to appear. Closing a card after paying it off can also change your overall available credit and the average age of your accounts. Paying on time and keeping accounts open, where appropriate, can help preserve a consistent payment history.
An application for a balance transfer card, personal loan or other borrowing usually involves a hard search, which is recorded on the applicant’s credit report. Several hard searches in a short period can affect how future lenders view new borrowing. An eligibility check or soft search can provide an indication of whether an application is suitable without being visible to other lenders in the same way. Updraft, for example, uses credit information as part of eligibility and affordability assessment, rather than relying on a credit score alone.
Reviewing a credit report can identify incorrect balances, missed-payment markers or accounts that should have been closed. Errors can be disputed with the credit reference agency or the relevant card provider. A repayment plan should also account for interest, minimum payments and the total cost of any replacement borrowing. Paying off cards only improves the position if new balances do not replace the amounts repaid and the new credit has a lower total cost where consolidation is being considered.