Many people think they need to be completely debt-free to build a strong credit score. In reality, it’s absolutely possible—and beneficial—to build credit while reducing debt. The key lies in responsible credit behavior, consistent payments, and managing your balances wisely.
This guide will show you how to improve your credit score even as you work to eliminate existing debts, helping you gain better access to loans, lower interest rates, and more financial freedom.
Table of Contents
- Why Building Credit While Paying Off Debt Matters
- Step 1: Make On-Time Payments Your Priority
- Step 2: Lower Your Credit Utilization Ratio
- Step 3: Keep Old Accounts Open
- Step 4: Use Credit-Builder Tools Strategically
- Step 5: Avoid Taking On New Unnecessary Debt
- Comparison Table: Debt-Reducing vs. Credit-Building Actions
- Final Thoughts
Why Building Credit While Paying Off Debt Matters
Strong credit is essential for many financial milestones—from getting a mortgage to securing low-interest loans or even renting an apartment. But if you’re currently working to pay down debt, it’s critical to balance both objectives.
Benefits of building credit while reducing debt:
- Qualify for better financial products in the future
- Save money on interest rates
- Improve your credit profile over time
- Prevent setbacks from missed or mismanaged accounts
Step 1: Make On-Time Payments Your Priority
Payment history makes up 35% of your credit score, making it the most important factor.
✅ Tip: Set up automatic payments or calendar reminders to avoid late fees or missed due dates. Even paying the minimum on time is better than missing payments.
Step 2: Lower Your Credit Utilization Ratio
Your credit utilization ratio is how much credit you use compared to your total available limit. Ideally, you should keep this ratio below 30%.
For example, if your total credit limit is $10,000 and you owe $3,000, your utilization is 30%. Lowering that number by paying down balances improves your credit score.
✅ Tip: Pay down high-interest credit cards first and ask for a limit increase (if eligible) to help lower your utilization.
Step 3: Keep Old Accounts Open
The length of your credit history also affects your score. Even if you’ve paid off a credit card, keeping the account open (as long as it doesn’t have fees) helps maintain your credit age and utilization ratio.
✅ Tip: Use the card occasionally for small purchases and pay them off to keep it active without adding new debt.
Step 4: Use Credit-Builder Tools Strategically
If your credit is limited or damaged, consider using credit-building tools while paying down debt:
- Secured Credit Cards: You deposit a refundable amount to open the card
- Credit Builder Loans: Small loans designed to help build history with on-time payments
- Authorized User Status: Join a trusted family member’s account to benefit from their good credit behavior
✅ These tools can help you add positive activity to your credit report—even while you’re focused on paying off debt.
Step 5: Avoid Taking On New Unnecessary Debt
While using credit responsibly can help your score, avoid applying for new loans or cards unless truly needed. Every hard inquiry slightly lowers your credit score and new accounts shorten your average credit age.
✅ Focus on managing current debts wisely rather than increasing your obligations.
Comparison Table: Debt-Reducing vs. Credit-Building Actions
| Action | Helps Reduce Debt | Helps Build Credit |
|---|---|---|
| Paying bills on time | ✅ | ✅ |
| Paying more than the minimum due | ✅ | ✅ |
| Reducing credit card balances | ✅ | ✅ |
| Keeping old accounts open | ❌ | ✅ |
| Avoiding new loan applications | ✅ | ✅ (indirectly) |
| Using credit-builder tools | ❌ | ✅ |
| Monitoring credit reports for errors | ❌ | ✅ |
Final Thoughts
You don’t need to wait until you’re debt-free to start building credit. By staying current on payments, reducing credit card balances, and using tools strategically, you can build a strong credit profile even while paying off what you owe.
Consistency is key—small actions taken every month can lead to long-term financial success.