Paying Off Debt – Is It Going to Fix Your Credit?
Paying Off DebtThe short answer: you should pay all your debts. All those unpaid credit card debts, defaulted installment loans and other issues are pulling down your credit score; paying them off will improve it. But, just paying the debts can’t fix everything.
What paying the debts will do.
When you pay off an old debt, it will show up as “closed” or “paid in full.” This is considered a positive or at least neutral entry. But, any negative entries associated with that account will still show up. So, if you have 10 late or missed payments, they will continue to show up as negative entries and drag down your credit score for as long as the account remains. Depending on what kind of account it is, this can be seven to 10 years.
What really needs to happen to fix your credit score.
While paying the debts is a necessary part of credit repair, finessing the record is what is really needed to see significant jumps. Key Credit Repair can negotiate with creditors on your behalf to remove those debts. When a negative entry disappears, your credit score will make a jump. The exact score improvement is difficult to predict, but we have seen significant improvements in our clients’ scores after helping them get negative entries removed.
Building more good credit.
A credit history where all your mistakes are fixed is also not enough. Creditors want to see you continue to use credit in responsible ways. The way you can show this is by opening new accounts and using them wisely.
Creditors like to see both revolving credit like credit cards and installment loans like auto or personal loans. Open a new credit card account and put a single recurring expense on that account. For instance, you can make that card your autopay option on your gym membership or on Netflix. Then, set up that credit card account to automatically pay the balance each month out of your bank account. This way, you have an effort-free way to show responsible use of revolving credit.
For an installment loan, consider a loan for a new car. Even if you can’t get a good rate at first, these loans are easy to refinance. If you do not currently need a new car, you also have the option of a personal loan to pay off your credit cards. Often, you will find a much better rate than you are getting from your credit card company. Set the loan up to debit your checking account automatically right after you get paid.
By making all of these wise steps, you will see a credit report with more positive entries and a credit score on the rise. In time, you’ll have a score that will make mortgage lenders eager to work with you.