Is Having No Debt Bad for My Credit Score?

Quick Answer

Having no debt isn’t bad for your credit as long as there is some activity on your credit reports. You can have a great score without paying a penny of interest.

A young woman wearing a white shirt smiles at her phone as she holds her credit card.

Having no credit card debt isn't bad for your credit scores, but you do need to maintain open and active credit accounts to have the best scores. By using your credit cards and paying the balances off monthly (so that you carry no debt), you could achieve an excellent credit score. The key is having positive activity on your credit report—and you can do that without carrying debt.

It is a myth that being or staying in debt is essential to having a good credit score. You may have also heard that it's smart to leave at least a small portion of one credit card bill unpaid in order to have good credit. That's not true either. Here's what you need to know.

What Does It Really Mean to Be Debt-Free?

Being debt-free means having no debt—credit card or otherwise. But because most people require debt to do things such as purchase houses and cars, it's unlikely that you'll be completely debt-free.

You can, however, be free of revolving debt, such as credit card balances. This is debt that fluctuates based on your spending and payoff habits rather than debt paid off based on a set amortization schedule like an installment loan.

So, while you might not be fully debt-free, it is possible to not carry credit card balances from one month to the next. Doing this can help you have a high credit score, which is beneficial in the event that you need to take out new credit.

How Paying Off Debt Can Affect Your Credit Score

Paying down credit card debt is likely to help your credit score because credit scores consider your credit utilization rate, or the amount of available credit you are using, and lower is better. Paying down a balance will reduce that rate, which is likely to help your score.

Paying off an installment loan might reduce your score a bit, but if it happens—and it may not—it's likely to be temporary.

Paying off credit cards in full every month will not hurt your credit score, but not having any credit activity at all can, over time, damage your credit if your credit card issuers close your cards due to inactivity.

If you are uncomfortable with having a credit card bill, you can use credit cards strictly for convenience, paying off purchases as soon as they post online. If you are using a rewards credit card, you will still get your rewards as well as the consumer protections a credit card provides, without paying any interest.

In general, paying credit accounts on time, and doing it consistently, is the best way to achieve good credit.

How Having No Debt Affects Your Credit Score

There is a difference between having no debt and having no credit activity. Depending on how you define debt, you could have credit cards that you pay in full every month and a mortgage and still consider yourself debt-free. In that scenario, your low credit card balances and record of on-time payments are likely to result in solid credit.

If, on the other hand, you have no debt—and have no credit accounts—you may not have a credit record at all if you have not used credit in the past 10 years. (Open accounts in good standing can stay on a credit report indefinitely; if the accounts are closed, payment history can last up to 10 years.)

The Bottom Line

Getting out of debt and staying out of debt is a laudable goal, and it's not bad for your credit score as long as there is some activity on your credit accounts. You can accomplish this without debt if you use credit cards and pay the balances in full every month.

While credit scores are designed to predict the likelihood that you will pay a new debt as agreed, there is no requirement—or reward—for carrying debt from month to month. You can do what's best for your finances without worrying that your credit score will suffer.

You can keep an eye on your credit report and credit score for free with Experian. Checking your score won't hurt it, and keeping up with scores is a smart way to detect potential fraud early.