Ultimate Guide to Boosting Your Credit Score and Paying Down Debt

A high credit score can open the door to more financial options and investment opportunities. You may already know that your credit score is essential, but this three-digit number is used for much more than approving you for credit.
Navigating the factors that are involved in determining your credit score can feel complicated. However, the more you learn about how to improve your credit — and what not to do — the more empowered you’ll be to make smarter credit choices in the future.
So what information goes into setting your credit score? And how do you build credit while also juggling debt? I’ll answer all of your most pressing credit questions and provide you with a clear roadmap towards a better credit report.

Understanding your credit report

Before we tackle how to pay down your debt while boosting your credit report, it’s important to understand what your credit score really is, the factors that impact it, and why this score is one of the most important numbers in your life.

What is your credit score?

Your credit score is a three-digit number that’s designed to reflect the way you handle your finances. What it really represents to lenders is your financial risk. It lets them know if you’re likely to pay your bills in full and on-time so they can make a qualified decision before offering you any form of credit.
Credit scores are determined by three separate credit reporting bureaus: Transunion, Equifax, and Experion. They’ll review the information in your credit report when selecting your score. Scores start at 300 and go up to 850.
Here’s how to know how your score stacks up:
  • 300-579 - Poor
  • 580 - 669 - Fair
  • 670 - 739 - Good
  • 740 - 799 - Very Good
  • 800 - 850 - Excellent

What determines your credit score?

Many factors go into determining your credit score. Because these factors can be weighted differently, it’s possible to have three slightly different credit scores between the different credit bureaus.
A few important factors that play a role in your credit score include:
  • Length of credit history
  • The amount of debt owed vs. credit available
  • Payment history
  • Hard inquiries
  • Accounts that have gone to collections
Paying your bills late, using too much credit, and letting accounts fall into delinquency or collection status raise red flags and will cause your score to drop.

Why is your credit score important?

You’ll need good credit to get approved for credit cards, loans, and mortgages. If you have poor credit it can be nearly impossible to buy a car, borrow money, or even finance the home of your dreams.
On the off chance that you’re not interested in any of these traditional credit methods, a bad credit score can still make your life harder.
Landlords often ask to see your credit score to determine if you’re a financially responsible credit. Jobs might even inquire into your credit history before hiring you to understand if you make accountable credit decisions.

How debt impacts your credit score

If you’re in debt and have a low credit score, it can be particularly important to improve your score. Your debt might limit you from having the funds to pay for schooling, purchase a car, or buy a home. This might mean you’ll need to rely on credit to get approved for loans or rental home.
Since your credit report reflects the way you handle your credit, debt has a major impact on your FICO score. Using credit regularly and paying off loan and credit card balances in full, for instance, can have a positive impact on your credit report.
You might think that paying high balances first is the best way to positively impact your credit scoring, but that’s not always the case. This is due to one of the scoring factors: credit utilization.
Your credit utilization ratio (or rate) plays a large role in calculating your score. This rate refers to the amount of debt you owe vs. the credit you have available to you. To find this number for an individual account you would divide the total amount of credit used by the credit limit. If you wanted to find your total credit utilization rate, you’d add up all of your credit utilized on all accounts and divide this number by your total credit limit.
Let’s look at an example below.
Credit AccountTotal Amount of CreditCredit UtilizedAvailable CreditCredit Utilization Rate
Capital One Card$1,500$500$1,00033%
Walmart Store Credit Card$5,000$2,500$2,50050%
Amazon Credit Card$1,000$600$40060%
CitiBank Credit Card$8,500$4,950$3,55058%
TOTAL$16,000$8,550$7,45053%
In this scenario, the credit utilization rate on the first Capital One card is fairly low, while the other rates are all at or above 50%. Ideally, you should aim for a credit utilization rate that’s below 30% on each account. In this scenario, paying down more money on accounts over 50% could help improve an individual’s credit score.

How to improve your credit score while managing debt

Normally, individuals choose to focus on one aspect of their finances at a time. However, since debt and credit reports are so closely linked, you’ll want to take steps to pay down your smartly, in ways that will help boost your score.

1. Gain access to your credit report.

The first step you’ll want to take is getting a copy of your credit report. By federal law, you can request a hardcopy of your credit score once a year for free from all three of the major credit bureaus. To do this, you’ll visit AnnualCreditReport.com. There are many websites with similar names, so make sure the site you navigate to looks like this:
Annual Credit Report
Next, select “Request your free credit reports.” From there you’ll enter your information and answer some personal and financial questions that only you should be able to answer. After this, you’ll be able to view your credit reports and download them to your computer.
If you’d prefer a hard copy, you can mail a request form to:
Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281
If you’ve already used your free access for the year or would like to view your credit more frequently, you have other options. Sites like Credit Karma and Intuit Turbo allow you to create free accounts and view your FICO scores at any time. Keep in mind, these sites typically only report scores from one or two of the three credit bureaus.
If you want to view your VantageScore, you can obtain that for free as well. VantageScores differ from FICO credit scores in the way they calculate your number. You’ll have three FICO scores (one from each credit bureau) and only one VantageScore (a blend of the three bureau’s reporting). Since you never know which scoring system a credit card issuer or lender will use, it can be a good idea to pull both. You can request a free VantageScore from VantageScore.com.
Lastly, sometimes credit card and even banking accounts offer you access to your credit score or reporting history. Check with your provider to find out if you can gain access to your credit information through your online account.

2. Review your credit accounts

Once you have a copy of your credit report, review all accounts listed as opened and verify that they’re your accounts. If you do not recognize an account, you can often dispute it online. Once you’ve confirmed all accounts, you should figure out your credit limit vs. your current balance. I suggest logging on to your individual accounts to get the latest numbers since your credit reports can be weeks to months behind.
Now that you have this information, calculate your credit utilization rate for each account and overall. I recommend compiling this information in a spreadsheet or Google Sheet. The ultimate goal will be to bring your utilization down. If any accounts have a particularly high utilization rate, consider paying those down first.

3. Determine a payment plan to help pay down your debt faster

From here, it’s time to decide how much you can pay each month to begin chipping away at your debt and credit utilization. You should plug payment amounts in your spreadsheet and calculate your new remaining balance and credit utilization after the first month’s payments. Continue this process until you reach 30%. This will let you know approximately how many months or years it will take to boost your credit score by paying down your debt.
Keep in mind, this is a simple method for determining a roadmap to 30% credit utilization that won’t take into account your credit card interest rates or any new purchases made on credit accounts. I’d recommend severely cutting down on your credit usage during this time.

Additional tips that can help boost your credit score

While getting your credit utilization under control will be the key to boosting your score when tackling debt, remember other factors play a role in determining your credit score. With that in mind, here are some additional tips that can help you improve your credit score.

Schedule all minimum payments

You want to avoid any missed payments, late payments, or payments that are lower than the minimum requirement for the month. While you may have a plan to pay more than the minimum to reduce your debt faster, I highly recommend you schedule the minimum payment to come out of your checking account on the due date. This way, if you forget to pay one month or pay a few days late, there will not be any negative impact to your score.

Become an authorized user on another person’s account

If you have a parent, family member, significant other, or friend who always pays their bills on time and has an excellent credit score, you could ask to become an authorized user on one of their credit accounts.
This can be helpful for a few different reasons. It can improve your credit utilization if the account holder’s utilization rate is low. It can also boost your on-time payment history if they always pay their card on time. It’s also particularly helpful for anyone who may have student loan debt but no credit. This can establish a healthy credit account on your report.
On the downside, if the primary account holder misses a payment, your score could get dinged. Lastly, not all accounts that allow adding authorized users will report this activity to the credit bureaus, which may mean the card won’t show up on your credit report — and therefore won’t impact your score — at all.

Don’t close any old or unused accounts

Since you’re paying down debt, you might think it smart to close any old or unused accounts so you can get them off of your report. Unfortunately, this can lower your score even more. Credit history plays a role in determining your FICO score, so you’ll want to keep older cards on your account to boost your score.
In addition, closing accounts also impacts your credit utilization by decreasing your overall credit limit, which will increase your utilization rates.

Limit hard inquiries

Have you ever applied for a store credit card you knew you wouldn’t be approved for, just to get a discount at checkout? While it may seem like a win-win situation — no new accounts and savings on your order — this can actually hurt your credit score.
Hard inquiries refer to when lenders pull your credit report to see if you qualify for a credit account. While doing this occasionally won’t impact your score tremendously, doing this too often can negatively affect your credit score. Hard inquiries do fall off of your report much sooner than negative marks (such as late payments, collections accounts, and missed payments), but typically show on your credit report for two years.

Dispute incorrect information

You might discover that a payment on your account has been marked late, even though you paid on time. Or perhaps a payment shows as missed, but you’re positive you paid that month. First, review your transactions to ensure the report is a mistake. If so, you can dispute this mark through one of the credit bureaus. You can submit this online (your credit report platform might have a way to report disputes) or visit Experian, TransUnion, or Equifax’s online dispute centers.
You can also file a dispute by mail and send it to one of the three credit bureaus:
Equifax P.O. Box 740256 Atlanta, GA 30374
TransUnion P.O. Box 2000 Chester, PA 19016
Experian P.O. Box 9701 Allen, TX 75013
If the credit bureau agrees that the information is incorrect, it will typically be removed from your credit report within 30 days.

Apply for new credit accounts with caution

This method is a bit risky but can help you boost your credit, particularly if you’re approved for a high credit amount. After you’ve established a solid few months’ worth of paying down your debt, not missing a payment, and slowly boosting your credit score, you might consider applying for an additional credit card.
Doing this can be a quick way to increase your credit limit, thus lowering your overall credit utilization rate. This can lead to a pretty good boost in your credit score, as well. However, there are a few downsides to consider.
First, there’s the chance that you’ll be denied and this application will show up as another hard inquiry on your credit report, which can lower your score. Secondly, if you know you don’t have your credit spending under control, access to another card might not be the healthiest option for your personal finances.
A new card can improve your credit, but I recommend trying the other tips and demonstrating a pattern of healthy credit usage and debt payments before trying this strategy.

Don’t pay for credit repair

If you’re struggling to pay down debt, you might be tempted to hire a credit repair company to help “fix” your credit. The truth is, there’s nothing these companies can do that you cannot do on your own. They might dispute inaccuracies on your behalf or create a healthy credit plan for you to follow, but ultimately, if money is tight, it’s often better to repair your credit yourself.

How to Use Your Credit Once Your Debt is Paid Down

Whether you’ve fully paid off your debt or managed to get your utilization rate under 30% for each card, you’ll want to maintain (and lower, if you can) these rates. First, you’ll need to use your cards regularly. Not doing this can cause them to close, which will impact your credit score. I recommend only making small purchases or purchases you can pay in cash with your credit card, and then paying for them on or before the due date every time.
For instance, I have one credit card that I use for Netflix, one for Hulu, and another to pay my rent each month. After these purchases go through, I log onto my account and pay off the balance in full. This shows I’m regularly using my credit, making on-time payments, and keeping my utilization rates low.
Check-in on your credit reports regularly to make sure your efforts are working. If your score starts to dip, revisit the tips you originally followed to pay down your debt and boost your score.

The bottom line

Having a good credit score can offer you a lot of freedoms — access to higher lines of credit, better rates on personal loans and mortgages, and even access to better jobs. Even if you’re in debt, it’s important to take the necessary steps to boost your credit score and practice healthy spending habits. There are no shortcuts, though. Only by paying down your debt and using credit responsibly will you be able to improve your score over time.
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