7 debt payoffs that boost your credit score the most

If you are looking to increase your credit score, here are some ways to improve your score by tackling certain debts head on.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

If you have a FICO credit score that is too low, there are some ways to improve your score by tackling your debts head on. But it helps to have a plan, as not all debt payoffs will help you. In fact, credit bureaus like to see people who have some revolving debt but are still capable of paying their bills.

So how can you give your credit score a boost? Here are the kinds of payoffs that will be helpful.

1. Anything That's on Time

Nothing helps your credit score more than your ability to make payments on time. If you can pay off your credit card balance in full each month, that helps. If you make your monthly mortgage payment every month without delay, that's huge. In fact, these types of payments are viewed more positively by credit bureaus than any other factor.

2. Debt With the Highest Interest Rates

Cards with the highest interest rates are the ones that place you at the most risk of racking up more debt, thus hurting your credit score. By paying these cards off first, you are reducing your debt risk and ultimately will see your score rise.

3. Credit Cards With the Lowest Credit Limits

Credit card bureaus will not only analyze your total debt, but the amount of debt relative to your total limit. If your debt is low relative to what you are allowed to borrow, that's good. But if you're close to maxing out a credit card with a low limit, pay that one off first. This way, if you choose to close the credit card, your debt load is reduced but your limit doesn't shrink as much.

4. Anything That Gets Your Credit Utilization Under 30%

Just because credit card companies let you borrow up to a certain amount doesn't mean you should always charge up to the limit. Even if you pay credit cards on time, your credit score can be negatively impacted if you have a high revolving balance. Generally speaking, if you are using more than 30% of your available credit, that's a problem. So even if you can't get your balance down to zero, work to make sure you're borrowing less than a third of what you are allowed. You will continue to see improvement until your credit utilization is down to 10% or less.

5. Your Student Loans (But Not Always)

Paying off your student loans is usually a good thing, because you're reducing your debt-to-income ratio. And because student debt is not dischargeable in bankruptcy, your wages could be garnished if you don't pay up. The fact that you have a long history of making your loan payments on time will continue to help your score, even after the debt is paid. But it's worth noting a debt payoff in this case could result in a change to your debt mix, thus impacting your score negatively. Student loans are considered installment loans, because you pay a fixed amount each month, while credit cards are a vehicle for revolving debt. Credit bureaus like to see both types in your file.

6. Small Balances on Numerous Credit Cards

You may think your credit score should be fine if you have only small debts. But if those small debts are on multiple credit cards, your score may be suffering. One of the things that FICO looks at when evaluating credit is how many credit cards have balances. So if you have debt on more than one card—even if it's a small amount—it's best to get those card balances down to zero.

7. Any Past-Due Bills

If you have debts that are very late, it's best to still pay back what you owe. This may not ultimately boost your credit score significantly right away, according to FICO, but new lenders will still want to see that you paid back what was owed. Prioritize the most recent past-due bills first.

Topics:
  • Credit
  • Pay & Benefits
  • Saving and Spending
  • Starting Out
  • Credit
  • Pay & Benefits
  • Saving and Spending
  • Starting Out
  • Credit
  • Pay & Benefits
  • Saving and Spending
  • Starting Out
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print
This article was written by Tim Lemke from Kiplinger and was licensed as an article reprint from May 25, 2016. Article copyright 2016 by Kiplinger.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third-party provider of the reprint permission and Fidelity Investments are independent entities and not legally affiliated.
The images, graphs, tools, and videos are for illustrative purposes only.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917.
764776.1.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.

Here's what we suggest you explore next

Your credit card minimum payment is just that—a minimum

Do you pay your credit card payments in full? This article explains what a credit card minimum payment is, and more importantly what it means to you when paying your credit card bill.

2% cash back on everyday purchases1

Deposit your cash rewards into an eligible Fidelity account. No annual fees.

You might also like

Your credit card minimum payment is just that—a minimum

Do you pay your credit card payments in full? This article explains what a credit card minimum payment is, and more importantly what it means to you when paying your credit card bill.

Your credit score isn't affected by these 5 factors

Your credit score is affected by numerous factors. This article sheds some light on factors you may have previously thought affected your credit report, but actually don't.

7 ways to increase debt payoff momentum

Paying off debt routinely is not always easy. This article examines 7 ways you can increase your debt payoff momentum.

2% cash back on everyday purchases1

Deposit your cash rewards into an eligible Fidelity account. No annual fees.