Paying Off Debt Can Temporarily Hurt A Credit Score

Many people who attempt to improve their credit scores think paying their debt off in one fell swoop will do the trick. But according to Investopedia, those who want better ratings should do it a bit differently.

Paying off debt does not erase previously-delinquent payments, and they will still affect credit ratings, the news source reported. Any payments made on fees that are overdue will help. This is because FICO scores consist of multiple categories, including payment history and funds currently owed.

Consumers may be surprised if they begin to pay the bill on a charge off and see their credit score fall, according to the news source. This should not be alarming, as these debts are considered by the financial institution as lost money, but when a payment is made, they resemble new debt. Liabilities that are current will weigh down a score more than old debt will, but this is only temporary.

Those dealing with credit card debt should deal with delinquencies first, as it may be worth waiting on charge offs until after, the news source added. This way, ratings will be affected less than usual.