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Certainly not. In fact, paying off debt is one of the simplest ways to improve your credit scores. Your credit score is a reflection of how good a credit risk you are, which means the higher your score, the better.

How paying off your debts improves your credit score

A credit score is something like an SAT score: 800 or better is excellent. A score of 650 or below is bad, and it's better to have no credit score than a bad one.

The numbers that make up your credit score are by no means an equivalent of the amount you have borrowed. Rather, they show the rating of your performance as a borrower.

Therefore keeping your debt low and paying it off helps your credit score to improve and should be part of your credit repair efforts. Your rating for how much you owe contributes about 30% to your credit score while that for payment history equals 35% of the score.

The higher your credit score, the lower your interest and your insurance rates will be as well. So you should strive to make your score high, and one way to do that is to pay off all debts as soon as possible.

Having a lot of debts only helps your credit score if you always manage to pay off the debts in time without forgetting a single payment. So always remember to pay your installments on time. Paying late or missing payments lowers your credit score.

Credit card do's and don'ts

Having credit cards tends to get most people mired in debt. Nevertheless, credit cards are a necessity these days. Here's how to use them to help rather than harm your credit score.

Do have few credit cards that you know you can pay for. Getting a credit card if you don't already have one is one way of improving your credit score also. This may seem contradictory, since credit cards encourage most people to run up debts. But that is precisely what makes your record of credit card use a good way to judge if you are a good credit risk. If you can resist the urge to overcharge, keep your balance low, and pay in full by the end of the month, then you build a good credit score by using your credit card.

The trouble is, this is not true of a lot of people. So do pay your credit card balance in full. If your credit card debt is your problem, then you have to pay off the debt as soon as you can by increasing the amount you pay monthly. As soon as you can pay off all your balance, then do so.

Don't get more credit cards to increase the amount you can charge. Don't get a credit card you don't need just for the sake of a good promotional offer that comes with signing up if you won't be able to resist using the card either. Think carefully before getting another credit card when you're already in debt, because this may very well just lower further your credit score.

Do pay all your credit card debts down. If you have more than one credit card, strive to pay down all of them off by increasing the amount of your monthly payments on each of them. This is a better strategy than focusing on paying off one card at a time. Having the same amount of debt divided over a smaller number of credit accounts can in fact cause your credit score to go down as your debt to credit limit ratio is higher. Paying off debts on just one card may therefore be one instance where paying off debt lowers credit scores. It is most sensible to focus on paying off the balance on the cards that are closest to reaching their limits first.

Don't think that closing unused accounts will contribute to your score. As mentioned earlier, having your debt divided among a smaller number of usable accounts actually lowers your credit score. So it is helpful to have that extra unused credit card, provided you don't end up actually using it while you're working on paying off your debts.

On the other hand, if you really have a lot of credit cards, do try to consolidate a few of the older ones into the newer ones. This is to reduce the age of the debts.

Do quit using all your credit cards first if you are determined to pay off your debts. Obviously, if you run up more debts you will never be able to pay them off. And using them, even if you can pay off the additional amount you charged by the end of the month, will raise your interest and thus add to the amount you need to pay off.

In short, common sense and ethics prevail. To improve your credit score, you must pay your just debts!