Having too much debt is a very good way to hurt your credit score. The result is that it will cost you a lot more in interest each month and end up costing you thousands of dollars more than you would otherwise pay if you had used cash. Here are some tips to enable you to pay off your debt and repair your credit score at the same time – or at least keep it good if it already is.

Check Credit Report for Errors and Repair It

If you have not checked your credit report recently for errors, you really do need to start here. It is not at all uncommon for errors to be put onto a credit report, and a mistake that you may not even be aware of can have a strong negative effect on your ability to get decent interest rates on anything.

Any problems that you might have had with identity theft could also be very detrimental to your credit score. Fixing it now – especially if there is a definite error – could enable you to get better rates on everything from credit cards to loans and even on your auto insurance. Corrections take about six weeks to show up on your credit report.

Remember to look at a copy of your free credit report from each of the three major credit bureaus – EquiFax, Experian, and TransUnion. More creditors are reporting to all three of these agencies than before, and each one of your reports may have slightly different information on them. Besides, you never know which one of them a potential lender will check with when looking at your records.

Contact Creditors for Reduced Interest Rates

Once your credit report is taken care of, you want to talk to your creditors. This is only necessary, however, if you cannot meet your current bills, or if you simply want to try to reduce your interest rates. Often times, they are willing to put your account on hold for a short time and reduce your payments, especially if there is a brighter future in which you think you will be able to make the payments.

Do Not Open or Close Other Credit Cards – Except One

Having too much debt or too much credit does affect your credit score. There is a ratio the creditors like to see, and it is generally about 20% of debt to the amount of credit you have, according to Experian.

Experian also mentions on their Website that opening or closing a credit card could lower your credit score. Many people sometimes learn about the debt to credit ratio and then try to either open new credit cards, or close existing ones, in order to attempt to change their ratio, and then discover that it actually made their credit score lower.

Remember that potential lenders can see that the older cards were closed and they will probably guess that it was to hide a low credit score – which unfortunately, is even lower now. Another factor in your credit score is how long you have had and maintained open credit. If you close your oldest credit cards, this will reduce the length of your credit history – and probably hurt your credit score.

The only new credit that you may want to open is a new balance transfer credit card. This will enable you to possibly get 0 percent interest (or low interest) on the balances that are transferred. This is the only new credit you should get, and it will help to reduce the overall debt you have because of less interest.

Pay Your Debts on Time without Fail

The largest factor in raising your credit score is simply making your payments on time. According to FICO, it counts as 35% of the calculation of your credit score. This is the lender’s biggest concern and it is certainly one you do not want to overlook.

When you are working on a particular bill to eliminate it, you do not want to forget to pay the minimums on all your bills, and especially pay them on time. Although one late payment may not be reported on your credit report, several late payments most likely will appear there.

Do Not Use Credit Repair Services

Many credit repair services are just a scam to get your money. The truth is that about all they can do is to challenge information on your credit report to try and get it either corrected or removed. While being challenged, the information may disappear for a short time, but if it is true, then you can be sure that it will be back.

Experian says that there is no quick way to repair your credit. It has to be earned. You do this primarily by efficient handling of your finances and paying down your debt. Your credit score is constantly changing as you continue to make payments and change your debt or credit levels.

If you have business credit that needs good credit scores, then it is necessary to keep some balances on your credit cards. It is different with a business. By keeping some charges on your card and continuing to show that you can make payments on time, you establish a history of financial credibility, and this will let a lender know that your business is still in good financial condition.

Do It Yourself and Save Money

Debt settlement services, or a debt consolidation loan, are apt to add to your overall debt. Even if the company is able to reduce your bills, the added charges that they add on to it, may mean that there is little, if any savings.

The truth is that all of these things you can do yourself. Simply start with the smallest bill and pay it off. Then take that money and put it all toward the next bill, and keep on doing this until all your bills are paid. Being debt free and having an excellent credit score is a tremendous experience that you can enjoy – once it happens.

It is not very uncommon today to hear about debt and how it has a lot of people scrambling for ways to deal with it. Much of the debt today is from credit card debt. Credit cards made it easy to make purchases without either having to have any money in your wallet, or in your bank account, either.

A whole industry has risen up to help people deal with debt – the debt consolidation industry. Much of the problems associated with debt, however, are because people are listening too closely to the lenders for information about credit and debt. Here is some information about another way to look at debt and what you can do about debt reduction and debt elimination.

How You Should Look at Debt

When you consider that the first credit card was never intended to be used as they are now, you may be able to get a better picture of how people traditionally looked at debt. The first credit card was the Diner’s Card. It was issued to restaurant goers in New York City so that they would not need to carry cash with them when they patronized certain popular restaurants.

The intent was that a bill would then be sent to the home of the one who used the credit card, and then the bill would be paid in full when it was received. There never was the idea that it should have been paid in installments as it is now.

People back then believed in having limited debt and living within their means. It was considered dishonest (and unwise) to live above what you earned. They understood back then that it would eventually catch up with you and the false world you created would come crumbling down.

How Credit Card Companies Look at Debt

The credit card companies soon learned that people wanted to be able to make payments. They also discovered that more interest could be charged and people would accept it as part of the privilege of buying without cash. Interest levels have been tested and then raised over time.

Today, it is not unusual for people to be paying as much as 19% on credit cards. Some people even tolerate much higher interest rates than this – possibly as much as 30%, or more. Investor’s know that interest rates of about 10% means that the original amount becomes doubled in about seven years when the interest is compounded.

In more recent years, the credit card companies hid the amount that they were actually earning by not telling people how long it would take to pay off their debt. It took the new credit card law (which came into effect in February 2010) to now require credit card companies to reveal how long it will take you to pay off your current debt on each bill. This enables people to have a more  realistic (but unnerving) understanding of how much debt they really are in and how long it will take to get debt free.

How the Credit Report Companies Look at Debt

The FICO system was designed to enable lenders to have some kind of basis to make a determination about the creditworthiness of an individual before extending credit to them. Recently, the big three credit report companies – EquiFax, Experian, and TransUnion – formed VantageScore, and Experian no longer works with FICO.

Experian reveals some tips that are helpful when it comes to understanding how debt affects your credit score. They advise that for the ideal credit score you want to keep your debt lower than 20 percent of your total income. They also advise against closing out credit card accounts after they are paid off because it changes your debt-to-income ratios by lowering your credit ceiling.

The key to altering your credit score is to keep on making payments on time. FICO and VantageScore use your repayment history to calculate 35 percent of your credit score. That means that it is more important than anything else that goes into the calculation. It also means that you cannot raise your credit score by any other means, and, no, a debt consolidation company cannot help you here.

Debt reduction is another major factor in raising your credit score. It will also help you to have to pay less money in interest. Each month you should pay as much as you can toward your credit card bills – especially toward the one that has the highest amount of interest.

What You Can Do About Your Current Debt

In order to start to get control of your debt, it is necessary to just stop raising your debt level by continuing to use your credit cards. Paying with cash is an old-fashioned idea that works and there is no interest rate on cash.

Remember that any new amounts that are put onto a credit card are paid last. Fortunately, the new credit card law demands that purchases with the highest interest rates be paid first. While this will help reduce the worst interest rates on your card, it will not eliminate interest – which is probably rather high.

One of the best moves you could make would be to get a new balance transfer credit card and put your debt onto it. This is especially of value because it virtually reduces your credit card interest to zero (or low interest) for up to one year and allows all your payment money to go to reducing the debt.

If you want to quickly get out of debt, then you should do all you can with your current finances to eliminate all extras in spending to free up as much cash as possible. Then, take all you can, and pay down your debt quickly.

It is worth it even if you need to take an extra job or work some overtime (if available) to be able to reduce your debt faster. This does not necessarily pertain to debt on a mortgage or debt on a car, unless you want to get rid of those debts, too, but it certainly won’t hurt to eliminate that debt, as well.