How has paying off debt improved your credit score?

[ThriftyMan]

One of the biggest short term impacts you'll see from starting to work on your debt is the impact on your credit score. Thankfully, this can happen pretty quickly. The major impact is on the two largest factors with your score:

• Payment history (35% of your score): Paying on time on all your accounts can start to improve your score in as little as 4 to 6 months, especially if you're starting from a point with some delinquencies.
• Credit line utilization (30% of your score): Ideally your credit line utilization is less than 10% for both your total utilization and on each of your cards. However, you can see an improvement at less than 25% utilization. Depending on your beginning balances, you'll see a significant improvement in 18-24 months after you start a debt payoff plan.

I'd like to see if people will share how their credit score has improved as they've started to pay off debt. I think that others will find the information useful adn provide motivation. A couple of questions:

• What have you done to pay off your debt?
• What's the impact been on your credit score?
• What was the most important thing you did?
• What would you do differently?

I'd love to hear from you.

[rosebud]

I graduated from college last year with about $10,000 in credit card debt. At the time, my credit score was pretty low. I didn't have a long credit history, I was maxed out, and I was behind on a couple of accounts. I have paid off some debt since then and have really focused on making all my payments on time. I've seen my score go from about 620 to nearly 650. Not too much, but it's moving in the right direction.

[darren.hanson]

Congratulations on the improvement. I've seen mine go from about 520 to 560 in just a month of working on getting everything paid on time. And I look forward to both of us getting to 720+ before we even know what happened!

[rharrell]

I am paying off debt now due to you and removing old delinquent accounts off my 3 credit bureau accounts and the effect has been tremendous. I still have a ways to go which is to get all 3 credit bureau accounts above 740. Someone told me that was a requirement for a conventional home mortage account but an expert from Wells Fargo today said that is not true; there are programs out there for people who have scores in the 600's. Be CAREFUL when you get advise off the internet on such important purchases as a HOME or a CAR as they may be more interested in you as a potential client to make MONEY, rather than provide you with a package suitable to your individual needs that a bank like Wells Fargo can provide for you. Stay away from banks like Bank of America who are too big to treat you like a human being and think they can charge you for anything and everything they think up.
Stay on TRACT with DEBTGOAL. My credit card was cancelled recently and DEBTGOAL did not just cancel my account when the payments were failing, they just politely inquired about could there be an issue with the credit card I had on file or what did I wish to do.

[ThriftyMan]

Rharrell

I'm glad you're having success with DG. As you say, just keeping with it will help improve your credit score by a ton. Making ALL your payments on time can start to improve your score in as little as 6 months. This accounts for 35% of your score. And paying off debt will improve your credit line utilization which is another 30%. So you're definitely on a good path to get to that 740.

740 may or may not be a cutoff for different banks. 720 used to be the limit that banks used for "prime" customers, but requirements are definitely stricter now. But you can definitely get there with a bit of work.

[ThriftyMan]

One more thing...be on the lookout for our new credit score tool that will help you estimate what your credit score would be without debt. It's amazing how high it can be!

[mandy7421]

I am just starting to figure out how to improve my credit score..i need to know what the first steps would be. I got my report off of freecreditreport.com...and it shows all of my debt, now i need to know what i should pay off first to increase my credit...any ideas???

thanks!!

[ThriftyMan]

Hey, Mandy

I understand your situation...sometimes it's hard to know where to start. But it's also hard to know what advice to give without knowing a bit more. Do you mind sending me a PM with your score?

Here's what I can tell you:
There are 5 factors that impact credit. If your score is low, the biggest impact will come from making on-time payments consistently on your accounts. You'll see an improvement in 4-6 months.

The next one is reducing your debt, relative to your outstanding credit line. There are two elements to this: how "maxed out" you are overall and how "maxed" you are on individual accounts. Both count, but the aggregate measure is more important. So you can pick any account and pay it off and your score will start to go up. This can happen pretty quickly.

The third think to look at is you type of accounts. Certain things like Rent-to-Own or in-store financing will have a very big negative impact. If you have these types of accounts, you should pay these off first and close them.

Hope this helps. Write back if you have more specific questions.

[manley.rebeccaa]

Hello,
I am 24 years old and after falling behind on some credit cards 2 years ago because of mulitple reasons.....my credit has became awful. Freecreditreport.com says that my score is 565 and I have 11 negative accounts (I need help, You may KNOW ALL ) Anyway, I have paid off 2 small medical bills and settled with one of the credit card companies (I had too settle with that one). None of this has showed up on the report yet because it hasn't had time. The 11 negatives should come down from this. I've started making payments on the Capital One card and another one of the medical bills. I have a volunary repo on there and 3 more credit cards that are all closed and behind. I'm trying to get my score up quickly. I'm renting a home that the owners would like me to take over the payments soon and I don't want to loose it. I know that it's gonna take some time...but I need to try to get my score up as quickly as possible. All my student loans are up to date and fine (those don't go away...I'm not messing those up) i did reconsolidate them into one big one to make it easier. What do I need to do? I keep asking around and everyone is saying different things. I've been told I should file bankruptcy on the repo and the medical bills but I don't know about that. That's not good for your credit. Another said I should open some type of installment account and I would love to get my car refinanced (right now it's from a buy here pay here so it doesn't help my credit that the payment is never late). I owe less than what it's worth so I was going to go through a credit union. Will this help? I need so much advice. Please help! Thanks.

Becki

[Debtonate]

Hi Rebecca - I think you're already doing the right things to start seeing improvements in your score. Depending on the type of accounts, negative accounts can take 5-7 years from last payment before they stop impacting your score. You're doing the right thing by paying them off one by one. Your score will not improve in leaps immediately but you'll see a steady improvement over time. The reality is that even one negative account can lead to an immediate and substantial drop in score but it takes time to get the score back up.

I think the best thing you can do at the moment is to simplify. It seems that you're considering a number of new loans, trying to retire a few unpaid ones and all the while doing all this to improve your credit and my guess is that you want to improve your credit for a big upcoming purchase. In that case, you want to really, really make things simple so that you can easily outline what you will do over the next few months.
- focus on repaying as many of the negative accounts as possible. You can negotiate hard and settle them at much lower amounts.
- Save for down payment or for a cash reserve so you can use it to bring down your interest costs. Open a different account or have a way to keep this money separate from the account where you pay your bills
- Find additional cash to see if you can pay off more debt (call your cable provider to reduce your bill, call your cell phone company)
- Call your banks and other credit card issuers to see if they would lower your interest rates

You also asked if re-financing your car would help - see if your credit union will offer you substantially lower rat to refinance. Buy here-pay here can have very high interest rates so you may be able to get lower monthly instalment from the credit union. I don't think refinancing just so you can have the loan reported in your credit report will help on the score front though. If at all, your score may go down when you apply for the new loan (new inquiry).

So bottomline, you're doing the right thing by paying off negative accounts, so you'll start seeing your score improve over time. And keep things simple! That will give you much clearer picture of your finances and help you make better decisions.

I hope this helps and let me know if you have more questions!