If you had to raise your FICO score quickly, and you had a choice—either pay off your charge cards or pay off your mortgage—which would you choose?
Most people say they would pay off their mortgage to increase their credit score the fastest.
But when it comes to FICO scores, eliminating charge card debt is far more powerful than eliminating mortgages or car loans.
And if you think about it, it makes sense. When assigning a credit score, the scoring bureaus assess risk by asking a question: How likely will this borrower default in the next two years?
Most people prioritize their mortgage payments; they would rather skip a few meals than lose their home. So having a balance on your mortgage isn’t really that risky.
But people aren’t quite as responsible with their Visas and MasterCards. In fact, even the most financially responsible people make a few bad decisions when it comes to the allure of credit card spending.
So keeping a low balance (or no balance at all) on your credit cards is a far better indicator of your financial situation, and your ability to pay upcoming bills.
The moral of the story: If you want to increase your FICO score, get your credit card balances under control!
P.S. If you want a few ideas on increasing your credit score by lowering your credit card balance, here are a few articles you should read:
The Dirty Little Secret
A Penny-Pinching Tip