What debt should you pay down first to improve your credit score?

| Tedis Baboumian | ,

If you’re looking to improve your credit score, one of the best things you can do is pay down your debt. But with so many different types of debt, it can be hard to know where to start.

First, let’s talk about why paying down debt is so important for your credit score. When you have a lot of debt, it can hurt your credit utilization ratio, which is a big factor in your credit score. Your credit utilization ratio is the amount of credit you’re using compared to the amount of credit you have available. Experts recommend keeping your credit utilization ratio below 30% to maintain a good credit score.

With that in mind, here are the debts you should focus on paying down first:

  1. Credit card debt: Credit card debt usually comes with high-interest rates, which can make it hard to pay off. But it’s also the type of debt that can have the biggest impact on your credit score. So, if you have credit card debt, try to focus on paying that down first. Make the minimum payments on your other debts and put any extra money toward your credit card debt.
  2. Personal loans: If you have a personal loan with a high-interest rate, it’s a good idea to pay that down next. Personal loans are often unsecured, which means they don’t require collateral. But because they’re unsecured, they usually come with higher interest rates than secured loans like mortgages or auto loans.
  3. Car loans: Speaking of auto loans, if you have one, it’s a good idea to focus on paying that down next. Car loans are secured loans, which means they’re backed by collateral (in this case, your car). They usually have lower interest rates than unsecured loans like personal loans or credit cards.
  4. Mortgages: Finally, if you have a mortgage, you should focus on paying that down last. Mortgages are also secured loans, and they usually come with the lowest interest rates of any type of debt. Plus, mortgages are considered “good” debt because they’re an investment in a home, which can appreciate in value over time.

Of course, these are just general guidelines. Your individual situation may be different, and you should always consult with a financial advisor before making any big financial decisions. But if you’re looking to improve your credit score, paying down your credit card debt should be your first priority.

Dovly is a free AI credit engine that can help you dispute any errors you find on your credit report. Try it risk-free with our free membership tier. Get in touch with Dovly today.

Dovly Credit

Like the article? Spread the word