If you're wondering whether you can improve your credit score while paying down debt, the answer is yes. You don't have to wait until every balance is paid off to see a difference. Each payment you make works in your favor, and while changes may not show up overnight, steady progress can start strengthening your score well before your debt is gone.
How Your Score Is Calculated
It’s important to understand the ins and outs of your FICO score, which is one of the leaders in credit score calculations. Your payment history accounts for 35% and the amount owed accounts for 30%, ensuring that as you pay down debt, your progress starts to impact your credit score before it’s completely gone.
Lower Your Credit Utilization
Your credit utilization is the amount of available credit you’re using. The most common advice is to keep it below 30%, although ideally, it would be under 10%. When you begin paying off your credit cards, you’re immediately growing your available credit, which positively impacts your credit score.
What If I’m On a Debt Management Plan?
If you and your credit counselor decide that enrolling in a debt management plan (DMP) is the best move forward, you may see a temporary dip in your credit score. However, that’s only because they will typically advise you to close your accounts. Over time, the dip from closing those accounts recovers and improves by the steady payments you’re making to lower your overall debt.
Bottom Line
Credit card debt is revolving, which means that as you pay it down, you gain credit, which in turn will improve your credit score. If you’re overwhelmed by debt, make an appointment with a credit counselor. A certified counselor can review your full financial picture and help you create a plan to pay down debt while building a stronger credit score.