The Best Way to Raise Your Credit Scores After Paying Debts

Your credit score is calculated based on the information on your credit report and is used by lenders to determine how creditworthy you are. Some employers even review potential employees' credit reports before hiring, especially in positions that deal with money transfers and sensitive information. Paying down your debts is a great way to raise your credit score, but there are other steps you can take to continue to raise your credit score.

Leave Accounts Open

Though it may seem like a good idea to close your credit cards accounts after you have paid them off, if you can avoid the temptation to spend your way back into debt you should leave them open for several reasons. First, by leaving the accounts open they will report that you are current on your payments each month, even if you have not charged anything on the account, which improves the 35 percent of your credit score that is based on your payment history. Second, by leaving the accounts open you will decrease the percentage of your available credit that you are using. For example, if you have five credit cards, each with a credit limit of $3,000, your total credit limit would be $15,000. Assuming you owed $12,000 before you paid them off, you would be using 80 percent of your available credit. If you paid off $10,000 and closed four of your credit cards, you would only owe $2,000 but your credit lines would be reduced to $3,000 so you would be using 2/3 of your available credit. However, if you left those credit cards open, you would only be using 13.3 percent of your available credit.

Redistribute Remaining Debt

Your credit score may get another small boost if you redistribute any remaining debt so that you are not using more than 20 or 30 percent of your credit limit on any card. For example, if you have three credit cards with credit limits of $4,000 each, it is better to have $1,000 on each card rather than $3,000 on one of them and $0 on the other two. It is better to pay off your debt rather than shift it around, but until you have the ability to pay off your debt completely, this method can be used.

Limit Applications

Now that you have paid down your debt, limit the number of new credit applications. Each time you apply for a new credit card, personal loan, car loan or mortgage, an inquiry is recorded on your credit report and remains on your report for two years. When you have several inquiries, your credit score goes down and you appear more desperate to creditors. New credit applications make up 10 percent of your credit score.