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How to Pay Down Credit Cards to Boost Your Credit Score

Say goodbye to your maxed-out cards with this debt payment plan.

How to Pay Down Credit Cards to Boost Your Credit Score
Getty ImagesMoving a balance to a zero percent APR transfer card could be a good strategy for paying down your pile of debt.
By Abby Hayes

If you know anything about credit scores, you know carrying high credit card balances is a big no-no. In fact, your debt-to-credit ratio (how much you owe versus your total available credit) makes up about 30 percent of your overall credit score. And revolving debt -- like credit cards -- weighs heavier than other outstanding debts -- like your mortgage or car loan. So if you're carrying a bunch of maxed-out credit cards, your credit score is likely in the tank.

The most straightforward way to improve your debt-to-credit ratio is to simply pay down those balances. But chances are if you're in a lot of debt, you can't pay off all the balances right away. (That's how you got here in the first place, right?)

Here's the good news: You don't have to pay your credit cards off to boost your credit score. But to get the most credit score traction out of every extra payment, you do need to come up with a plan for paying down your credit cards in a certain way.

The Snowball Method

The snowball method is excellent for paying off debt quickly and efficiently. Basically, you throw extra money at one debt, and when it's paid off, put the extra plus the old debt's minimum payment toward the next debt. Repeat this until you're debt-free.

This is an excellent way to get out of debt, if just getting out of debt is your goal. But what if your goal is to get out of debt while also boosting your credit score as quickly as possible? Maybe you're hoping to apply for a mortgage soon, or a car loan?

In this case, the snowball method probably isn't how you want to start. Eventually, you might switch to that, but you may want to begin by evening out your credit card balances.

Lowering Your Debt-to-Credit Ratio

When FICO calculates your credit score, it looks at not only your overall debt-to-credit ratio, but also the individual debt-to-credit ratios of your various credit cards and other revolving debt accounts.

Here's an example:
  • Card 1: $5,000 balance/$10,000 limit = 50 percent debt-to-credit ratio.
  • Card 2: $4,500 balance/$5,000 limit = 90 percent debt-to-credit ratio.
  • Card 3: $500 balance/$1,500 limit = 33 percent debt-to-credit ratio.
  • Overall: $10,000 balance/$16,500 = 60 percent debt-to-credit ratio.
In this case, your overall 60 percent debt-to-credit ratio will ding your credit score pretty severely. A "good" debt-to-credit ratio is around 30 percent, and you're nearly doubling that.

But since your score also accounts for individual credit cards, you can see that Card 2 is hurting you the worst -- it's nearly maxed out, which is not good. Card 3 is posing the smallest problem, since it is nearly in that "good" range.

In a situation like this, you'll boost your credit score if you focus on paying down Card 2 first. Depending on the interest rates of each of these cards, you might choose to pay that card down all the way.

Or if it's a card with a lower APR, consider throwing money at its balance until it's at or near $1,500 to reach the 30 percent debt-to-credit ratio. Then move on to Card 1 or whichever card has the highest interest rate.

Now, this strategy isn't guaranteed to add hundreds of points to your credit score. But because you're improving individual debt-to-credit ratios for each of your credit cards, you will make progress more quickly than if you just snowballed your debt.

Still, you need to marry this with some aspects of the debt snowball, including the intensity with which you pay down your debt. After all, the only way to try to achieve credit score perfection is to pay your credit cards off completely, and refuse to carry a balance again.

Why Not Just Spread It Around?

Maybe you're reading this thinking, "Why not just transfer some of the balance from Card 2 to Card 3? Or get another credit card to transfer some of that balance?"

You could. In fact, moving balances to zero percent APR balance transfer cards can be a good strategy for both boosting your credit score and getting out of debt. But just shifting your balances around isn't going to help much here, partially because the credit limit on Card 3 is so low to begin with.

What if you do have a $0 balance card in the mix? In this case, you still don't want to transfer another card's balance. This is because one part of your credit utilization mix is the number of accounts that carry a balance. So having three accounts carrying a balance and one with no balance is better than having four accounts carrying a balance -- even if that move improves one card's debt-to-credit ratio.

You Can't Game the System

The bottom line here is that credit scoring models are so sophisticated these days that you can't really "game the system" by shifting debt from one card to another. In the long run, you just need to focus on getting those credit card balances paid off.

In the meantime, bringing cards below a 30 percent (or even 50 percent) debt-to-credit ratio may boost your credit score more quickly than simply snowballing your debt. This is especially true if your debt snowball would leave a maxed-out credit card in the mix for months to come.

Abby Hayes is a freelance blogger and journalist who writes for personal finance blog The Dough Roller and contributes to Dough Roller's weekly newsletter.

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July 01 2014 at 10:29 PM Report abuse rate up rate down Reply

Heres a flash...Stop buying stuff you can't afford!

May 14 2014 at 1:18 PM Report abuse rate up rate down Reply

Best way to get a deal on your credit card is to buy a credit card company.
Of course take out a loan to buy it.

May 14 2014 at 6:42 AM Report abuse rate up rate down Reply

Some discussion here regarding the Liberal Socialist Democrats and how they don't understand that Socialism doesn't work?
Socialism is how the Millionaires and Billionaires like Buffit, Streyer ,Bloomberg and Soros and all the Democrat office holders control people,enslave them and gain wealth and power.
You really think that all those Democrat politicians like Schumer,Reid,Boxer,Warren became multi millionaires because of public service?
Remember that the worse it gets in states like New York,Illinois,Rhode Island and California the faster the American Middle Class flees to Texas and North Carolina thereby cementing their absolute control over the remaining submissives and low information Democrats.
Socialism is Slavery and Rule by the Elites!

May 14 2014 at 5:47 AM Report abuse +1 rate up rate down Reply

This lame writer forgot the best thing: Pay the bills at least ten days early, and always about 50% more than the minimum. This makes it look like you can afford to make the payments with no problems. With the computers they can tell if you pay on the due date, looks like you can barely make the payments> My credit score went up 100 points doing this every month for a year. They keep sending me more cards, and raise the credit lines on the ones I already have. That lowers your utilization.


May 13 2014 at 9:02 PM Report abuse rate up rate down Reply

Our severe mental problem 'Presidente" will soon add another trillion dollars in DEBT,he was the pawn of a few x/treme socialist crony capitalist thiefs that are in the rackets

May 13 2014 at 7:29 PM Report abuse -1 rate up rate down Reply
1 reply to thefacts22's comment
Leroy Gd

Yes isn't socialism wonderful!

May 13 2014 at 9:09 PM Report abuse -2 rate up rate down Reply
Leroy Gd

Maybe our liar in chief should give thought about paying off our debt instead of having it skyrocket. Oh that's right he doesn't believe we have a debt problem, in fact he thinks we are not spending enough. Only a numb nut liberal would believe that nonsense.

May 13 2014 at 7:00 PM Report abuse +1 rate up rate down Reply
1 reply to Leroy Gd's comment

Maybe Leroy should first address his personal budget and debt. This article had nothing to do with politics and the fact that the complainers in debt find it convenient to blame the "government" need to look in the mirror and accept responsibility for their personal economic misfortune. IE... stop whining, stop pointing fingers and blaming others and get with it.

May 13 2014 at 7:53 PM Report abuse +4 rate up rate down Reply
1 reply to jpfmtka's comment
Leroy Gd

Spoken like a true know nothing numb nut lefty liberal loser and as one who adores our liar in chief and
#1 fool.
Regarding my own budget, i own my house and have no credit card debt or owe any money other than monthly bills. I live within my means, not like the spender obama is with tax payers money. Maybe you are content to allow our liar in chief to spend us into bankruptcy and won't say a peep about it , but people with balls who care about our country will.

May 13 2014 at 9:04 PM Report abuse -2 rate up rate down

Hello? The best answer is not how to fix debt but to prevent it. Other than a mortgage ( with an appropriate down payment), do not buy anything that you can not pay in full when the bill comes due. Simple.

May 13 2014 at 12:26 PM Report abuse +1 rate up rate down Reply
1 reply to jpfmtka's comment

It is that simple,living within your wallet is the answer...Invest and save and you will be a free man

May 13 2014 at 7:31 PM Report abuse +1 rate up rate down Reply

How do you people get into these credit card messes? Don't you know you're playing with fire?

May 13 2014 at 11:07 AM Report abuse +1 rate up rate down Reply
1 reply to rohlemeyer's comment

They do not know any better

May 13 2014 at 7:32 PM Report abuse -2 rate up rate down Reply

It is garbage. My score dropped 4 points to 798 due to having less than 2% utilization rate. Gave me a "B" rating. If I had over 4% I would have had an "A" rating.

I pay off my cards every month and only use them for convenience and miles/cashback. One of the only ways you can try and take back from the big banks.

May 13 2014 at 10:20 AM Report abuse +3 rate up rate down Reply
1 reply to Dave's comment

That is what I have done all my life

May 13 2014 at 7:33 PM Report abuse rate up rate down Reply