Your credit score is based on a wide variety of financial information linked to how you use credit. You can reduce your debt without ruining your credit score if you know what goes into calculating the score. You can create a debt repayment plan based around maintaining the best possible credit rating. Eventually, you can be debt free and have an excellent credit score that enables you to get new credit if you need it in the future.
Step 1
Call your credit card companies and ask them to lower your interest rates if you currently have high rates. This can vary depending on the market, but rates above 15 to 18 percent are generally considered high. Requesting a decreased interest rate will not hurt your credit score. It will save you money if the bank agrees because more of each payment will go toward the balance rather than being chewed up by interest.
Step 2
Create a budget that allows you to make at least the minimum payment on all your loans and amounts. Fair Isaac Corp (FICO), developer of the FICO credit score, says making on-time payments on all accounts is critical to maintaining a good score. Send payments well before the due date, as they can ruin your credit score if they consistently arrive late.
Step 3
Channel any extra money in your budget toward paying more on the accounts with the highest interest rates. FICO says low balances support a good credit report, and high interest accounts cost you the most money in the long run if you only make minimum payments. Liz Pulliam Weston of MSN Money says putting extra money on them will get the balances down more rapidly.
Step 4
Leave credit card accounts open once you have paid them off. FICO warns that closing accounts can hurt your credit score because it impacts the overall length of your credit history. A longer history is better for your score.
Tips and Warnings
- You must use credit to keep your score high. This means continuing to use it once your debts are paid off. You do not have to build up new balances. Make a limited number of purchases each month and pay them off in full as soon as the bill arrives. This will maintain your score while protecting you from falling into debt again.
Things You'll Need
- Workable budget
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