Will Paying Off Debt Lower Your Credit Score?

It can be entirely too easy to find yourself in debt. But it’s much more difficult to get yourself out of it. After all, spending money (whether on bills and expenses or personal items) is much easier than finding the money to pay it all back. And then you have to think about what paying that money back is actually going to do for or against you. That may be why you’re wondering will paying off debt lower your credit score?

The Benefits of Paying off Debt

The first thing we’re going to look at is the benefits associated with paying off debt. For one thing, your money is going to be your own again. While you’re trying to pay off debt you’re spending a lot of money and getting nothing in return. After all, you’ve already gotten that benefit. Whether you paid for your groceries or you bought yourself a new gaming system, you already bought it. Now you just have to pay the money back that you already spent. It’s not going to feel as fun as whatever it was that you bought, right?

So, once you have paid off your debt you don’t have to keep paying that money in anymore. You now have extra money to do whatever you like with and to enjoy yourself again.

Another benefit is that your credit score could go up. After all, one of the major aspects of your credit score is your debt to credit ratio. This is where the credit reporting bureau will look at how much available credit you have and how much debt you have to decide whether you are a good risk or a bad risk. The lower your debt to credit ratio the better risk you’re considered. And that means your credit score will go up in response. But there’s more to it than that.

The Drawbacks of Paying off Debt

Now, your credit utilization, or debt to credit ratio, will absolutely go down in response to you paying off debt. And that’s great. But there’s another important part of your credit score that will be affected. And that part could have a negative effect on your credit score.

The part we’re talking about here is the length of credit activity or even the type of accounts. Depending on how you end up paying off your debts your credit utilization could actually be negatively impacted. Here’s how it all works.

When you pay off a debt you may be tempted to close out the account. After all, that will keep you from getting into the same kind of trouble again, right? And that might be the way to go if you have trouble refraining from using those cards again. But you should do it with the full knowledge of the impact you could have.

If you close an account you are actually going to increase your credit utilization rate. That’s because you will have less available credit compared to the amount of debt that you currently have. As a result, your credit score could actually go down as you close out accounts.

Another factor that plays into this is your length of credit history. If the accounts you’re closing are your oldest accounts this will also cause your credit score to go down. And, while a smaller portion of your overall score, closing different types of accounts and changing the variety of accounts you have will also negatively affect your score.

Now, none of this is intended to convince you that paying off your debts isn’t a good thing. It absolutely is. But it’s important to go into the situation fully aware.

What You Should Do

So, what should you do if you find yourself in debt? The first thing you should do is look for the top debt relief program. There are plenty of options out there, but the best debt relief program is going to be one that helps you understand your current situation and then helps you to overcome it.

You want to get out of debt or you wouldn’t even be considering the implications. But trying to do it alone is extremely difficult, especially if you find yourself with a great deal of debt that you’re trying to get out of. The top debt relief program, available with Freedom Debt Relief, will help you every step of the way.

When you go through debt relief the first step is taking a good, hard look at your situation. This can be difficult because it involves compiling all of your debt and seeing that number staring straight back at you. For a lot of people it’s difficult to even contemplate. But it doesn’t have to be as daunting as you might think, because you have a team on your side.

Working with the top debt relief program means that you’re not alone, which is going to help you feel a whole lot better as you’re setting up a plan and working through the hard stuff with your program. You’ll have someone on your side that you can talk to and get support and advice from every step of the way.

Even just having someone else who knows the situation and is willing and able to help can make a big difference for you.

But having a debt relief company with you means that you don’t just have a friend to commiserate with. You actually have a professional who can take action along the way.

By reaching out to the top debt relief company around, you can also get started on this process a whole lot faster, and find your way out of debt much faster as well.

Getting Out of Debt

If you have found yourself wondering about the benefits of debt repayment and will paying off debt lower your credit score then you’re not alone. It’s a question many people ask themselves. And it’s a complicated question to answer. The truth is, it’s all going to depend on your debt relief journey and where the process takes you. You may see quick improvements to your credit score, or you may see a backslide before you see those improvements. Working with a debt relief company can help you and give you more information about what to expect. But no matter what, it’s going to be worth it in the end.

Huynh Nguyen

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