If you think your credit score can only improve once your credit card debt is completely paid off, think again. Even if you don’t see the results immediately, paying down debt will help you start to move toward a more positive credit score.
Understanding Your Credit Score
FICO, one of the most widely used credit scoring models, bases 35% of your score on payment history and 30% on the amount you owe. As you pay down your balances and make on-time payments, you're actively improving two of the biggest factors in your score.
Use Less of Your Available Credit
The amount of available credit you’re using is called your credit utilization. When you’re using less, your credit utilization goes down, positively impacting your credit score.
How a Debt Management Plan Affects Your Credit
A debt management plan (DMP) is a program your credit counselor may recommend if you're carrying a significant amount of debt. Once you enroll, your counselor works with your creditors to lower your interest rates and combine your payments into one monthly payment, helping you pay off your debt in three to five years. When you start, the credit cards included in the plan are typically closed, which can cause a temporary dip in your score as your credit utilization rises. Over time, though, consistent payments and a shrinking balance usually outweigh that early dip, and your score will go up as your debt goes down.
Bottom Line
Ultimately paying down credit card debt is never a bad thing to do. If you’re feeling like you can’t get out of debt or just need support, make an appointment with a credit counselor for a free consultation. Whether you just need help making a budget you can stick to or you decide to enroll in a DMP, repaying your creditors will improve your credit score as you pay down debt.