Is there a best debt to pay off first in order to get the most of your credit score?
If you’re preparing to combat a mountain of debt you have one of two goals: you’re simply looking to get out of debt, or you also wish to increase your credit score in the process. If you’re one of those who is concerned about improving their credit score, approaching your debt can be even more overwhelming. Here are a couple of tips for paying off your debt while trying to improve your credit score.
Pay Off Past-Due Accounts
If you have accounts that are past due but haven’t quite made it into collections, pay them off first. For example, if you missed a month’s installment on your car loan payment and your account is reported as late, you should take care of the payment as soon as possible to ensure that your account is reported as current. By bringing all past-due accounts up to speed you could improve your credit score. Keep in mind that some loans, such as car loans, are hypersensitive to missed payments. If you have an outstanding balance for a lengthy period your car has the potential to be repossessed, which will take a toll on your credit score. Make payment arrangements for accounts that will soon be turned over to collections, for example accounts that have an outstanding balance over 90 days. The more you can avoid any additional collection accounts, the more it will probably help your credit score.
Take On Accounts with the Highest Annual Percentage Rate
Many people pay debt with lower balances first because it makes them feel like they’re making progress. In reality, it may make more financial sense to combat debt with the highest annual percentage rate first. You might want to start by paying debt with the highest interest rate. Keep in mind that the amount you owe could be insignificant if you’re paying off a high amount of interest on top of it.