Once debt is consolidated and paid off, does your credit score increase?

Question

Once debt is consolidated and paid off, does your credit score increase?

Answer 1

Most likely....but if you have had recent late pays, defaults/charge-offs, these will remain on your credit report and you'll continue to have damaged credit in spite of having paid off your debt.

If you don't have any defaults/late pays...you can expect to see a rise in your credit score as your debt utilization rate will go down.

Answer 2

Yes it does yo can find more info on that question here

http://www.debtclear.com/home?rf=ml&cid=...

Answer 3

Your score improves gradually as you pay off your debt. It doesn't magically change as the last penny of debt is paid off.

The credit bureaus (Trans Union, Equifax and Experian) all have formulas that partially base your credit score on the *percentage* of credit used (outstanding credit divided by the total credit card maximums).

Your score is also based on the recency of any tardy payments...the more recent the tardy payments, the more negatively if affects your credit score.

Answer 4

Not necessarily - There are 2 issues you are overlooking.

1 - Lets say you have 2 credit cards each with $5,000 limits.  you owe $4,000 on one and $0 on the other.  You have used 40% of your available credit.  If you close the card with the $0 balance, you are now using 80% of your available credit.  This will lower your credit score.

2 - The Credit Scoring Models also look at the length of time you've had credit.  If you close a credit card, especially one you've had for years, it will also lower your credit score.

So I agree that you should consolidate your debt and pay it off, just don't close the account (if you can help it).

If the debt your are paying off is an old collection, charge off or credit card you have defaulted on, paying them off may actually lower your credit score for a while.  Why? - Lets say the debt charged off in 2002.  After 2 years a bad debt has much less impact on your credit score.  If you pay the debt off now the credit report will show the "Last Report Date" as 2008, thus reporting a charge off as a current derogatory item on your credit report, thus lowering your score.

I always advise my clients to never pay off a "bad debt" just prior to applying for financing.  Make the payment of these debts as part of the "closing" of the loan.  That way your credit score will drop after you get the loan.

If not looking for any financing soon, then pay off the bad debt and take the lumps on your score.  It should come back within a year or so.  The sooner its paid, the sooner your score recovers.

Mr. Financial Freedom

http://www.5stepstofinancialfreedom.com

Answer 5

Without a doubt - yes!  Adding debt decreases your score, getting rid of debt increases your score.

Here's some extra advice:  If you have a mortgage and want to put some extra money into it, I would advise paying down on the principal, then you will not have to pay as much interest down the line.  At the rate I am paying down my principal, (vs. simply making an extra payment or two), by the end of my mortgage I will have saved myself $24,000!