Paying off debt is important to boosting your credit. There are several factors influencing your credit score, and working on each one can help get you on the right track.
Paying off cards with the highest interest rates first is very important to obtaining a better credit score, as these cards put you most at risk of getting buried in debt. If you pay those cards off first, you can reduce your debt risk and help your score rise.
When analyzing your credit score, bureaus look at the amount of debt you have in relation to the amount of money that you are allowed to borrow, and not just your overall debt.
Financial experts continue to debate whether paying high-interest cards first or high-balance cards first is more effective, but chances are it comes down to what makes the most sense for you.
If you are close to maxing out one of your cards with a low limit, you should make that card a priority so that if you choose to close out that card, your debt load is reduced but your limit will not shrink too much.
Be aware of how much you are borrowing. Although you can borrow up to a certain limit, that does not mean that you should charge up to that limit. Your credit score can be impacted negatively by doing so, even if you make payments on time. Try to borrow less than one third of what you are allowed. You will be able to see significant improvement when your credit utilization is down to 10% or less.
Paying off a student loan, personal loan or auto loan is usually a good thing if you have a long history of making your payments on time. However, this can lead to a change in your debt mix, which may impact your score negatively. Credit cards are representative of revolving debt, whereas installment loans have you pay a fixed amount each month. When looking at your file, credit bureaus like to see positive history with both types of debt.
Number of Cards
When looking at your credit, FICO will evaluate how many credit card balances you have. Even if you have small amounts on multiple cards, you should work to get the balance down to zero. Having too many credit cards can be a bad thing.
Being able to raise your credit score can often be a difficult task. The best way to help your credit is by making your payments on time. Assess your debt and start making better progress today!