With paying that much off, it would seem my score should be higher.
So what are we doing wrong?
-T.
Dear T.,
Youve improved your credit score by 72 points.
Youve paid off $22,000 worth of debt.
You asked me what youre doing wrong.
Id counter that youre obviously doing something right.
Your credit score isnt the GPA of your finances.
Its not a measure of your overall fiscal health.
Its simply a number that helps lenders gauge your likelihood of becoming delinquent or defaulting on debt.
Sometimes whats good for your finances has a minimal effect on your credit score.
With credit scores, not all debt is treated equally.
The amount of credit youre using is a key factor too.
Keeping this number below 30% will help your credit score, though 0% is the ideal number.
No Interest Til Almost 2027?
But loans dont factor into your credit utilization ratio.
(Ignore your score for a few months in this scenario.
It will bounce back.)
Did you know?
you’re able to Get Paid Up to $140/Month Just for Sharing Your Honest Opinion
Harsh?
But the good news is the effect on your credit score is most acute in the first two years.
In the meantime, here are a few suggestions for jumpstarting your score.
Increasing your overall credit while chipping away at your balances will lower your credit utilization ratio.
You may be denied for a traditional credit card since your score is still in the 500s.
If that happens, apply for asecured credit card.
Youll have to put down a refundable deposit and use that as your credit limit.
If youre paying off both credit cards and loans, you might want to prioritize the credit cards.
Just keep the accounts open after you finish paying off the balance.
Also, see to it youve checked your credit reports and not just your score.
A final piece of advice: For now, try not to focus too much on your credit score.
Focus instead on your overall financial health, which is no doubt improving as you pay off debt.
A healthier credit score will develop over time.
Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny.
Send your questions about credit scores to[email protected].
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