How to Improve Your Credit Score While Paying Off Debt

 

## How to Improve Your Credit Score While Paying Off Debt

Paying off debt and improving your credit score may seem like competing goals, but with the right strategies, you can achieve both. Here's how to boost your credit score while actively paying down your debts:

### 1. Make Payments on Time

Payment history is the most significant factor in your credit score, accounting for 35% of your FICO score. To maintain a good payment history:

- Set up automatic payments for at least the minimum due to avoid late payments.

- If you're struggling to make payments, contact your lender to discuss options like hardship programs or modified payment plans.

- Avoid skipping payments altogether, as late payments can stay on your credit report for up to seven years and significantly damage your score.

### 2. Pay Down Credit Card Balances

Credit utilization, or the percentage of available credit you're using, makes up 30% of your FICO score. To lower your credit utilization:

- Focus on paying down credit card balances first, as credit cards have a higher impact on your score compared to installment loans.

- Aim to keep your credit utilization below 30% of your total available credit limit. The lower, the better for your score.

- Consider a balance transfer card with a 0% introductory APR to save on interest while you pay down your balance.

### 3. Avoid Closing Unused Credit Cards

The length of your credit history accounts for 15% of your FICO score. Closing unused credit cards can shorten your credit history and increase your credit utilization. Instead:

- Keep unused credit cards open, even if you don't use them regularly.

- Use your cards occasionally to keep them active and avoid annual fees.

- If you must close a card, do so strategically to minimize the impact on your credit utilization and length of credit history.

### 4. Limit New Credit Applications

New credit applications account for 10% of your FICO score. Each application can result in a hard inquiry on your credit report, which may temporarily lower your score. To minimize the impact:

- Only apply for credit when you need it, not just to have more available credit.

- Avoid applying for multiple cards within a short period, as each application will result in a hard inquiry.

- If you're rate shopping for loans, such as a mortgage or auto loan, multiple inquiries within a short period (usually 14-45 days) are typically counted as a single inquiry.

### 5. Diversify Your Credit Mix

The types of credit you have make up 10% of your FICO score. Having a mix of credit cards, installment loans, and mortgages can help improve your score. However, this factor is less important than payment history and credit utilization, so focus on those first.

### 6. Monitor Your Credit Report

Regularly reviewing your credit report can help you identify and dispute any errors that may be negatively impacting your score. You're entitled to a free credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) every 12 months at AnnualCreditReport.com.

### 7. Be Patient and Consistent

Improving your credit score while paying off debt takes time and consistency. It's not an overnight process, but by making on-time payments, reducing credit utilization, and avoiding new credit applications, you can gradually improve your score over several months to a year.

Remember, your credit score is just one aspect of your financial health. Focus on developing healthy financial habits, such as budgeting, saving, and living within your means, to achieve long-term financial stability.

Citations:

[1] https://www.investopedia.com/how-to-improve-your-credit-score-4590097

[2] https://www.shriramfinance.in/article-how-to-improve-credit-score-after-settlement

[3] https://cred.club/check-your-credit-score/articles/how-fast-does-a-credit-score-go-up-after-paying-off-debt

[4] https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/

[5] https://www.consumerfinance.gov/ask-cfpb/will-paying-off-my-credit-card-balance-every-month-improve-my-score-en-1293/

[6] https://www.moneymanagement.org/budget-guides/create-a-diy-debt-repayment-program

[7] https://www.experian.com/blogs/ask-experian/how-to-set-up-debt-repayment-plan/

[8] https://www.investopedia.com/articles/personal-finance/082115/10-tips-managing-your-student-loan-debt.asp