Which debt do I prioritize if my focus is improving credit score?

With available free access to your credit report, it’s easy to keep track of where you stand financially.  You can see everything from your previous and current accounts, the payment history on each account, credit inquiries, collections and public records.  While having all that information at your fingertips is convenient, it is really only beneficial if you know how to utilize it to improve your financial situation. When looking at all the information provided, it may seem confusing what debts to prioritize if your focus is improving your credit score.  The key is to prioritize the debts that have the most significant impact on your credit score. 

1. Credit card debt – A major factor in your credit score is your utilization ratio – how much you owe versus credit limit.  Carrying high credit card balances can negatively impact your credit score if you are over the target utilization rate.  Aim to reduce your credit card balances to below 30% of your available credit limit.
2. Past due accounts – Any accounts that are past due should be addressed immediately.  Payment history accounts for 35% of your credit score, so late payments can have a significant impact your credit score.
3. Accounts in collections – Having an account sent to collections will have a negative impact on your credit score.  Collection agencies report the collection account to the credit bureaus, and it can stay on your report for up to seven years.  If you have had a debt go to collections, and have paid it off in full or settled the debt, it will still appear on your credit report.  However, once you have paid off or settled the debt, the debt can no longer be sold to other collection agencies and can no longer lower your score. 
4. Age of existing credit – age of existing credit accounts for up to 15% of your total credit score and therefore, it is a great idea to maintain aged credit in good standing such as a credit card and strive to keep utilization below 30% of available limit.

Aside from focusing on the above debts, there are other simple tips that can help you improve your credit score. 
- Ensure you are making your bill payments on time. As mentioned above, payment history accounts for 35% of your credit score. 
- Avoid taking on new debt while working on paying down existing balances.
- Avoid new credit checks that can temporarily decrease your score. 
- Regularly check your credit report for any errors or inaccuracies that could be harming your score. 

If multiple debts are having a negative impact on your credit score, and you are having trouble deciding where to start to improve your credit score, there are options. 

If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options.  Every financial situation is unique and viable options can differ from person to person.  A conversation free of judgment is the first step to determine options for debt that make sense to you.  For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.