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About a year ago I started working on my credit score which I managed to ruin during my younger years. I got a 2 credit cards, 1 auto loan and 2 personal loans.

I'm paying off the credit cards in full every month. Would making extra payments toward the principal of my auto and personal loans improve the score? Would the size of the decrease in my balance matter to the credit agencies?

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Good job getting this taken care of!

Paying extra won't directly improve your score. But, if the loans are delinquent or in collections paying more means you pay them off faster, which means you will close them out sooner and that can improve your score.

If you're up to date on your credit card payments (paying the entire statement balance), paying extra won't improve your score. Again, paying extra only improves your score if you're behind and carrying a balance from month to month.

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    So, reducing the balance on personal and auto loans are not going to affect the score?
    – user98440
    May 18 '20 at 21:11
  • @user98440 Correct. As far as I know, if the accounts are in good standing (being paid on time) the balance doesn't matter. $1k or $100k, all that matters for your score is whether or not you're making payments on time.
    – Nosjack
    May 19 '20 at 13:58
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In questions like these it is important to understand why you want a high credit score. A high credit score does not indicate wealth or represent financial success. The difference between a kind of high (680-700) and highest (800+) credit score is meaningless to most people. Additionally most people find that, by paying their bills on time most people enjoy a high enough credit score and find themselves more limited by their income.

A person with no assets, a 25K/year income, and an 820 credit score will not be able to borrow 500K, even for a house. While a person with sufficient assets and income and a 500 credit score will be able to.

Paying interest on car loans, personal loans, and credit card interest is very damaging to your financial well being. It has a far more dramatic effect on your financial well being then a credit score. If you desire to achieve financial success then you should be looking to eradicate your life of these loans by working more and living a austere lifestyle.

You may have a different reason for wanting a high credit score, and if so you should share it. However, the attitude of this board is to improve one's financial life and the best you can do to achieve that is to retire these loans ASAP. Oh and refinancing them for a lower interest rate is not the answer.

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  • So much text, and 0 answer.... You need a good score to buy a house, to rent a good apartment, etc...
    – user98440
    May 18 '20 at 21:07
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    Their point is that a higher credit score (past ~700-720) doesn't really change anything. Most lending algorithms max out at 720 as the top tier for credit scores. Trying to find ways to get higher than that usually has diminishing returns. Now, paying down the debt WILL help decrease your debt:income ratio which lenders will look at ALONGSIDE your credit score to determine what they're willing to lend you.
    – Havegooda
    May 18 '20 at 21:26
  • Lately, my income has become way above average. But my credit score could be better. The only reason I took up all of these loans and cards is to increase the score. I don't mind buying a better one with a few thousand dollars.
    – user98440
    May 18 '20 at 21:28
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    @user98440 why is it worth paying thousands for a better credit score? What are you going to use it for that having a higher score will save you at least as many thousands?
    – Kat
    May 19 '20 at 1:48
  • @user98440 Sorry you missed the obvious. Pay our bills, your score will go up, and pay off your debt it will go up further. Also if your income is so high, it should be easy to retire these debts quickly.
    – Pete B.
    May 19 '20 at 10:15
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For credit cards or other products where you have a line amount and a balance, if you lower the balance, you free up available line. This factors into the "utilization ratio", and if you have a lower ratio the credit score models will generally give you a higher credit score because having that cushion of available credit makes you more likely to repay.

You may want to pay down the higher interest rate debts regardless, and unsecured credit (cards) are typically going to have higher rates than credit against collateral, so you probably want to pay down your cards sooner regardless.

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