Paying down your debt certainly feels good and can reduce your monthly financial obligations. Apart from paying your bills on time (35% of credit score), reducing your debt will lower your credit utilization (30% of credit score) and in turn improve you score.
What you need to understand is that not all debts are created equal.
Let me break it down for you:
Auto Loans & Mortgages: An auto loan and a mortgage are installment loans, and the balance of these types of loans do not affect your credit score. It’s only the payment history that counts for or against you when calculating your score.
Judgments: Judgments stay on your credit report for 7 years paid or unpaid. Paying off a judgment can however help you get approved for a mortgage.
Credit Cards: If you owe more than 30% of your available revolving credit, paying these lines down is one of the best strategies to improve your credit score. Keeping in mind, the balance that gets reported is the one right before your statement’s closing date. So, be sure to make a payment early enough that it will be credited to your account before the issuer reports your balance and your score should benefit.
If you have questions about paying off debt or want to talk about the health of your credit score, give me a call or email me.