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How to Pay Off Debt AND Build Credit: How I Raised My Credit Score 100 Points in One Month

May 15, 2017 | 1 Comment

Pay off debt and build credit
Just over one month ago I looked at my Credit Karma account and realized my credit score had slowly been slipping for months. I was stuck in a tough spot. I’d deferred student loan payments and allowed things to go to collections while I was trying to rebuild and become stable again.

My credit score was sitting at a 460 and I was absolutely terrified. I knew that I’d have a lot of work to do to get it back up to the high 600s it was just two years ago. But with student loan debt and other small debts continuing to rack up ($35,000 plus interest) I thought I had to choose: either pay down debts or build your credit. However, I found a way to do both.

Paying Off Debt While Building Credit

Now, when I say I had to choose you may be confused. Yes, paying debts does help your credit but not all debt payment will reflect positively on your credit report. For example, I paid off an item in collections. Because it was already in collections, it hit my report and won’t be fully gone until after seven years has passed.

There are debts that you obtain and pay that can help you build credit though. So if you’re looking to pay off debt and build credit, keep the following in mind:

What Debt Should You Target?

Prioritizing which debts will be paid off first is important. For instance, if you have something that is preventing you from furthering yourself on your credit report you’ll want to pay that item first. The item I paid in collections was preventing me from renting an apartment so I had to pay that to get a place to stay.

Next, you’ll want to target the debts that will report to your credit score. These are items that have not been sent to collections and are still open. If you make timely payments with at least the minimum each month it will positively affect your credit score.

Other Ways to Build Your Credit Score

If you don’t have any debt and still need a way to build your credit score, don’t worry. There are many ways for you to start building credit. Here are a few ways I’ve implemented since starting to work on my credit score:

  • Get a secured credit card: Secured credit cards are a great way for people for no credit or bad credit to build themselves up again. Most cards have a security deposit (usually between $50 and $200).
  • Take out a small loan: If you’re not interested in having a credit card you may consider taking out a small loan. Whether you need the loan for a home purchase or simply want to use it to consolidate debt, repaying the loan can greatly affect your credit.
  • Rent-to-own: Many rent-to-own places can help you build you credit as well and you’ll have something to show for it once you’ve paid it off. Just be sure to read the fine print and try to pay your items off before the interest kicks in.
  • Pay your bills on time: Paying your bills on time is a huge factor on your credit report. Consistently late payments can hurt your score by as much as 100 points (or more if you’re habitual).
  • Check your score often: If you see something that doesn’t look quite right on your credit score, fix it. You’ll want to be sure that no one is using your identity or that you aren’t being wrongfully charged.

I have and will be implementing each of these over the coming months. By paying down some debt and opening some lines of credit I’ve already been able to increase my credit score by 100 points in a month. Whether you are trying to pay off debt or build credit you need to pay attention to your credit score. Letting it go unnoticed will simply create more work for you in the long run. If you have additional ideas on how to pay off debt while building credit, share them with us! 

Photo: Bank Foreclosures Sale

Did you like this article? You may also want to check out:

  • Strategies on How to Reduce Debt
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  • One Couple Pays Off $200,000 in Student Loan Debt
Amanda Blankenship
Amanda Blankenship

Amanda is an editor and writer. She has a passion for sharing information that helps people and communities to better themselves in some way. In addition to writing online, she also freelances for local newspapers in her hometown of Charlotte, NC.

www.savingadvice.com

Filed Under: Uncategorized Tagged With: build credit, pay off debt

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About The Author

Amanda Blankenship is a 24-year-old full-time website manager and blogger. She is currently hacking her debt by saving money and investing, all while managing her family and enjoying her adult life.

 


Five Steps To Debt Freedom

Here are five simple guidlines that will help you pay off debt.  

1) Get an emergency fund so you don’t take on debt when something comes up.

2) List your debts. This way you know where you stand.

3) Use the debt snowball. Pay your debts from smallest to largest, or most expensive to least expensive.

4) Avoid new debt. No new credit cards or loans. Period.

5) Go all cash. After everything is paid off, switch to all cash.

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