If you are planning to apply for a loan or a new credit card soon, lowering your credit score first can help you get a better interest rate. Paying off credit card debt is one of the best ways to help your credit score increase rapidly.
Effects
The main effect of paying off credit card debt is that it decreases you utilization ratio, or the percent of available credit you are using. Because the utilization ratio makes up 30 percent of your credit score, having a better ratio will definitely help your credit score.
Expert Insight
Liz Pulliam Weston, credit card expert with MSN Money, recommends paying down each of your credit cards so its balance is no more than 30 percent of the available credit on that card. Getting all of your cards below 30 percent would help your score more than putting the payments toward paying off one card completely.
Significance
Lenders like to see that you pay off your debt responsibly and are capable of managing your finances. If you have credit cards that are maxed out, this leads lenders to believe that you are desperate for credit and may not be able to repay your debts.
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