Paying Debt to Improve Your Credit Score

I was told that I shouldn't bother paying off my debts (other than student loans), because paying it out won't change my credit score at all. It will still be lousy, so I might as well keep my money. True?

By Bluesome from Tonawanda, NY

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May 12, 20090 found this helpful

Paying off creditors definitely raises your credit score. It lowers your debt to income ratio which is something lenders look at. It take a month or so for payoffs to show up on your credit report. Hope that helps!

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May 20, 20090 found this helpful

That will work if you don't plan on buying a car or house in the next 10+ years. It might also hinder you from getting a job, as credit scores are checked when you apply at many jobs. It could keep you from renting an apartment, buying a condo (they also check your scores), renting a car, etc.

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May 20, 20090 found this helpful

You were given bad advice. You should certainly pay off your debt, because not doing so will hurt you in the long run. However, if you've defaulted on a credit card debt and want to settle the account, be prepared to pay the agreed-upon amount immediately because otherwise you'll get a "ding" on your credit score for initiating action on a past-due account and not closing it.

Begin by concentrating on your credit card debt, which typically has the highest interest rates, and save larger amounts with lower interest rates (such as your student loans or mortgage) for long-term payoff. Search for "snowball method" of paying off debt to learn more about an easy method to begin. My husband had a poor credit report but has improved it drastically through paying off his credit cards and taking the money he spent on credit card payments each month to pay off his car. It does take a while for your credit report to update, but it's worth it.

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May 20, 20090 found this helpful

Over one third of your credit score is based upon whether you pay bills in a timely manner.It's better to make small payments you can afford than to make no payment at all. You owe the debt. Pay your bills. You'll feel better in the long run knowing you are doing the right thing.

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May 20, 20090 found this helpful

You were given some pretty bad advice. Pay your credit cards on time. Don't just pay the minimum either. Paying off your credit card debt is only one way to up your credit score. Once your credit card debt is paid off, DO NOT close the card. Creditors see this as a black mark against you. Also DO NOT close a credit card with debt still to be paid out. Creditors see this as a bad risk. Once your credit cards are paid off, keep only 2 of them. Use one for emergencies and the other should be used for airline tickets and car rentals. The other cards should remain open, but if you cut up the cards you will not do any damage to your credit score.

Make sure you get an itemized copy of your past credit history and examine it every three months. If a debt was paid off in that three months and was not removed from your bad debt history, contact the appropriate people with whom the debt was with and explain to them that you are checking your credit history and would like that item removed since you have already paid this off.

Another thing about credit cards is to stop opening new accounts. Every time your credit history is opened by a new creditor (aka credit card, loan company, etc) 10 points drop from your credit score. I had a client once that would open those credit cards with 0% interest every 3-6 months and she kept transferring her money over. This debt transfer game cast her 80 points within a couple of years.

It pays to stay on top of your debt and get it paid off.

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May 20, 20090 found this helpful

Even if you're way past due on your bills, if you can pay them off, it will definitely raise your score - I know from experience. We went through this when buying our house. The process took a couple of months and with each debt that was paid (even though late), the credit score rose.

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May 20, 20090 found this helpful

I agree with everyone else here. My credit score is improving, and all I'm doing is paying a few dollars more than my minimum credit-card payment every month, on time. (For example, my minimum due this month was $75; I paid $80.)

Even my hubby's credit score has improved to some extent, on this same principle. It also saves us a fortune in late fees!

I'm not educated on all the ins and outs of credit scores; all I know is, the less percentage of your available credit you're currently using, the better your credit score. Potential creditors (and potential employers, etc,) see you as a better risk. Who knows? Next time you're ready to buy a car or refinance your house, with a better credit score (720+ is considered good,) you're more likely to be offered a lower "prime" rate.

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