Debt Repayment
01.07.2021 By Amelia O’Rourke-Owens

Save money by raising your credit score

With planning, patience, priorities, and a plan, almost anyone can reduce their debts and start to accumulate wealth.

At America Saves, we consider paying down debt to be saving because

  1. You can save money on interest and fees,
  2. You can build your credit score (Hyperlink), and
  3. Eliminating debt builds your net worth.

With planning, patience, priorities, and a plan, almost anyone can reduce their debts and start to accumulate wealth.

If you choose to prioritize saving money by raising your credit, you’re taking a delayed gratification approach. That’s because having a higher credit score can save you money once you attain it.

Tom Quinn of FICO explains that “when you raise your credit score, you can reduce your interest rate significantly and save money over the life of the loan.” If you’d like to see for yourself how much money a different credit score can save you, check out myFICO’s calculator (https://www.myfico.com/credit-education/financial-calculators).

If you specifically want to raise your credit score, you should first pay off your credit card with the smallest balance first. “From a score perspective, focus in on those lower balances first, get them down to zero. Then focus on the higher balance cards to begin to lessen your credit utilization will make the biggest difference for a person’s credit score,” Quinn explains for the saver who wants to raise their credit score.

To save money by raising your credit score, you need to complete these steps:

  1. Gather all your debts. Write yourself a list, include the total balance on each debt and indicate to yourself whether it’s installment or revolving credit.  
  2. Assess your revolving credit balances. Looking at just your revolving credit (credit cards, mostly), write them in order of the smallest balance to the largest.
  3. Now, re-write your list and pay off accordingly. At the top of your list should be the revolving debt with the lowest balance, keep the list going. Aim for putting any extra cash or payments just to the card with the smallest balance.

“The vast majority of your credit score is made up of payment history and credit history,” Quinn explains, so if you specifically want to raise your credit score, “it’s going to be most beneficial to pay off your smallest balance cards first, because then the user will get incremental points for less credits cards with balances and less cards with credit utilization.”

If you’re not sure whether you’d like to save by raising your credit score or saving money now (link), you can pull your credit reports for free at www.annualcreditreport.com. Saving is a habit, not a destination, so whichever way you choose, remember that you are saving!

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