You’ve Got Debt. Your Credit Score‘s in the Dumpster. So… What’s Next?
Let’s face it. Your credit score is like a report card for your financial life, and right now, it’s looking like you just flunked every subject. You’re in debt, your credit score is tanking, and you probably feel like you’re living in a bad reality TV show where your finances are the least interesting thing about you.
But here’s the twist: it doesn’t have to be this way! Your credit score doesn’t have to be a distant dream, floating just out of reach like that perfect avocado you were trying to buy at Whole Foods. No, you can raise that credit score—even if you’re currently swimming in debt.
In this article, we’re going to break down how to boost your credit score while you’re still working through debt. We’re talking about actionable tips that won’t require you to sell your kidney or take on a second job as a professional juggler. And yes, we’ll keep it fun. Because let’s face it, improving your credit score is serious business, but we’re not about to make it feel like a two-hour TED talk.
1. Understand Your Credit Score—What Is It Even?
Before we dive into tips and tricks, let’s first address the elephant in the room. You need to understand how your credit score works. Without this knowledge, boosting your credit score could feel like trying to run a marathon with one leg. So let’s break it down quickly and simply.
Your credit score ranges from 300 to 850 (though, if you’re closer to the 300 mark, don’t panic—we’ve got work to do). The higher your score, the better your creditworthiness, which makes lenders trust you more. You’ll pay lower interest rates on loans, credit cards, and sometimes even insurance. Winning!
Here’s the basic breakdown of how your score is calculated:
- Payment History (35%): Did you pay your bills on time? If you missed payments, it drags down your score.
- Credit Utilization (30%): How much credit are you using compared to how much credit you have? The lower the percentage, the better.
- Length of Credit History (15%): The longer you’ve been using credit responsibly, the better.
- Types of Credit (10%): The mix of credit cards, loans, and mortgages you have. Variety is the spice of financial life.
- New Credit (10%): If you’re opening a bunch of new accounts, it can ding your score for a bit.
Now that we’ve got the basics out of the way, it’s time to move on to the fun stuff: how to improve your score even while you’re buried under a mountain of debt. Ready? Let’s go.
2. Start Paying Bills on Time
Yes, Even the One You’ve Been Avoiding. You know that one bill you keep “accidentally” forgetting to pay each month? Yeah, that’s probably the reason your credit score is doing the Macarena on its way down. Late payments hurt your credit, and they hurt it bad. If you have a habit of paying your bills late, now’s the time to break it.
Here’s the secret: if you can manage to pay your bills on time, you’re already doing more than half of the work required to improve your credit score. Seriously. The biggest factor affecting your score is your payment history, so start setting reminders (your phone has a thing called a “calendar,” by the way) or sign up for automatic payments. Trust me, future you will thank you.
Pro Tip: If you’ve missed payments in the past, don’t give up hope. Even though they stick on your credit report for a while, just making timely payments from here on out can help improve your score over time.
3. Tackle High-Interest Debt First
If you’re in debt, then chances are you’re getting charged a hefty amount in interest every month. The worst offenders? High-interest credit cards, personal loans, and payday loans. These bad boys will eat up your money faster than a pack of raccoons in your trash can.
So, here’s the move: focus on paying off your high-interest debt first. This is known as the “avalanche method” in the world of personal finance. It’s simple—just pay off the debt that has the highest interest rate, and once that’s gone, move on to the next one.
This method not only saves you money in the long run (because, hello, less interest!) but it can also give your credit score a nice boost. Here’s why: as you pay down balances, your credit utilization rate (remember that 30% of your score?) will decrease, which means your credit score will slowly climb up. It’s like climbing a ladder, but instead of a ladder, it’s made of debt. And instead of you, it’s your credit score that gets to the top.
4. Keep Credit Card Balances Low
Here’s another tricky little nugget for you: your credit utilization ratio can make or break your credit score. If you’re using more than 30% of your available credit, it signals to lenders that you might be relying too much on credit, which can hurt your score. Think of it like eating an entire pizza by yourself: the more you eat, the worse you feel later.
To improve your credit score, aim to keep your credit card balance below 30% of your limit. If your current balance is too high, start paying it down bit by bit. And don’t go on a spending spree just because you’ve paid off a portion of your balance, okay? That’s like taking two steps forward and then tripping over your own feet.
Pro Tip: If you’re struggling to get your utilization down, consider asking for a credit limit increase. This will increase your available credit, and if you don’t rack up more debt, it’ll improve your utilization rate. But be honest with yourself—if you’re not disciplined, this might backfire.
5. Avoid Opening New Credit Accounts
No, You Don’t Need Another Store Card.
We get it. You’re tempted. You walk past that cashier with a sparkly new store credit card and a 10% discount offer just for signing up. You’re like, “Sure, why not? I’ll pay it off in no time!” But, my friend, opening new credit accounts can hurt your credit score—especially if you’re trying to climb out of debt.
Here’s the deal: every time you apply for new credit, a hard inquiry is made on your report. While one or two inquiries aren’t a huge deal, multiple inquiries in a short period can lower your score. So, before you say yes to every “great deal” you see, take a deep breath and ask yourself, “Do I really need this?”
Pro Tip: If you’re going to open new accounts, try to limit them. Consider applying for a credit card with a 0% APR on balance transfers to help you pay down debt without paying sky-high interest rates.
6. Get Creative With Debt Repayment—Consider Debt Consolidation or Refinancing
So, you’ve got a mountain of debt and a bunch of high-interest rates on your back. You can either cry about it (which is totally understandable) or you can get creative and consider debt consolidation or refinancing options. These strategies can simplify your payments and often reduce your interest rates, which, in turn, can make it easier to pay off your debt faster.
With debt consolidation, you combine all your debts into one single loan with a lower interest rate. Refinancing works in a similar way but typically applies to loans (like student loans or mortgages). The goal is to reduce the number of payments you’re juggling and lower your interest rate, which will save you money in the long run. And yes, your credit score can benefit from this by improving your credit utilization ratio and payment history.
What’s the solution ? If you’re considering consolidation, be sure you’re not just extending the length of your loan and paying more in the long run. Always do the math.
7. Get a Secured Credit Card (Because Sometimes You Gotta Fake It ‘Til You Make It)
If your credit score is looking like it’s been through the wringer, it might be tempting to think you’ll never get approved for a credit card again. But fear not! Enter the secured credit card. It’s like a regular credit card, but with one important twist—you have to deposit money into an account first, which acts as your credit limit. In other words, you’re borrowing from yourself. Kinda like paying yourself back with interest, but in reverse.
Using a secured card responsibly (that is, paying off your balance every month and not maxing it out) will show the credit bureaus that you’re capable of handling credit, which can eventually raise your score.
8. Patience, Grasshopper
Improving your credit score while you’re in debt isn’t something that happens overnight. It’s more of a slow burn than a quick fix. As you pay off your debts, reduce your credit utilization, and make timely payments, you’ll gradually start seeing your score rise. The key here is consistency. Keep doing the right things, and before you know it, you’ll have a score you can actually feel good about.
9. Celebrate Your Small Wins
No, Really—You Deserve It. Don’t forget to celebrate your progress along the way. Every time you pay off a debt or reduce your credit utilization, give yourself a high-five. Maybe even treat yourself to a small (budget-friendly) reward. It’s important to stay motivated and recognize that you’re making strides toward financial freedom.
Yes, being in debt can feel like the world’s heaviest backpack, but it doesn’t have to stay that way forever. By focusing on paying down high-interest debt, reducing credit utilization, and making timely payments, you can improve your credit score—even if you’re still dealing with debt. So, take a deep breath, tackle one step at a time, and remember: You’re capable of turning your credit score around, one bill at a time.
And hey, if you need a little pep talk along the way, just remember this: You’re not the first person to be in debt, and you certainly won’t be the last. But if you stick with it, you’ll soon be the one giving advice on how to improve a credit score while juggling debt—and maybe even laughing about.
What do you think about ?