Credit Score Articles

Small payments can lower credit score

Paying off debt might seem to some consumers like an impossibly high mountain to climb.

But the best way to pull out of debt is to start small, says a report on the financial news website The Street. Making so-called "micropayments" every two weeks, rather than once a month, saves not only on interest that's compiled daily, but also, by the end of the year, amounts to payments for 13 months rather than 12.

This method saves more money for those with higher interest rates and can improve a credit score at the same time. A series of scheduled, organized payments, the article says, helps avoid late payments and allows greater flexibility to pay more than the minimum.

This plan also works for more than one credit card. For the consumer that would pay off multiple cards under this schedule, the article suggests paying the minimum on every card, and then selecting one card to pay off first. If they choose the card with the lowest balance, they will be able to completely clear that debt more quickly, and if they choose the card with the highest interest rate, they will save more money.

However, the article warns that some lenders may not allow for separate payments in the same month to be combined into the minimum, so it is important to check with the company before beginning a payment schedule like this. Some issuers, it says, have no limitations on how often a borrower can pay, while others only allow payments every third day.

The article also says this is a good way to reduce debt-related stress. If payments are scheduled for immediately after a payday, then a consumer is paying down debt when they know they have the extra money to do so, and there's less of a chance to run out of it over the course of a month.

According to a recent Associated Press poll, about half of those that say they are in serious debt - 47 percent of those polled - experience a "great deal" of stress over it. The poll also found that more people believe that there is an economic recovery taking place, with 20 percent of those polled saying they believe the economy is "good," as opposed to just 15 percent last year.