How to improve credit score: Clearing card dues vs reducing outstanding loans – Comparison by personal finance expert

Improving your credit score requires more than simply clearing your pending debt. This is because how an individual manages credit card balances, existing loans, and their overall credit score can eventually influence their credit profile.

Now, it is a given that clearing credit card dues can reflect more quickly in an individual’s credit score; bringing down your outstanding loans can also go a long way to boost your repayment capacity. Improving a credit score is gradual and can take time on a case-by-case basis.

As a result, a straightforward question arises: which form of debt repayment should a borrower prioritise to improve their credit score?

Raj P. Narayanam, Founder & Executive Chairman, Zaggle, explained the difference between the two and their significance.

He stated, “Both matter, but they work on different timelines. Clearing card dues shows up faster, because card balances are reported every month and utilisation responds quickly.”

He further added, “Reducing loans builds strength more gradually, through a lighter debt burden and a consistent repayment record. The strongest profile combines the two: pay card dues in full and never miss an EMI. A card used actively and repaid on time is one of the most effective credit-building tools, and with zagg.money, we see that habit lift scores steadily.”

Clearing credit card dues can improve your score faster

Therefore, one should have a clear understanding of the concept behind ‘credit card utilisation.’ This is because credit card utilisation helps measure how much of the available credit limit a borrower uses.

This is an important factor that helps in meaningful credit assessment. Very high credit utilisation over extended periods can be a clear indication of greater dependence on credit and borrowed funds to meet day-to-day expenses. Such a behaviour can impact an individual's credit score in the long run.

The focus should be on paying off credit card dues in full and keeping outstanding balances low. Such behaviour can boost an individual’s creditworthiness and help in making future loans easier to secure. As credit card balances are generally reported periodically, lower utilisation may be reflected positively on the credit report after the lending institution updates the information.

Still, borrowers should make sure that they avoid carrying very high and difficult-to-manage unpaid balances for

extended periods or becoming habitual of repaying only the minimum amount due, as interest charges can rapidly increase the overall debt burden.

Reducing outstanding loans strengthens long-term credit health

Focusing on reducing existing loan balances can help individuals lower overall debt obligations and improve their financial flexibility. Not only that, consistently repaying EMIs on time helps establish a positive repayment history, which plays a meaningful role in building reputation, future borrowing profile, and overall creditworthiness.

Borrowers should hence avoid prioritising one form of debt repayment at the expense of the other. Furthermore, missing a debt payment or a loan EMI while clearing credit card dues, for example, can undermine efforts to improve credit scores.

The primary goal should be to clear pending debt, and, if possible, the higher-interest debt, such as credit card debt, should be paid off first to prevent interest costs from accruing.

In summary, the most efficient approach is to pay credit card bills on time and in full, maintain a manageable utilisation ratio, reduce outstanding loan balances steadily, and never miss an EMI.

Hence, building a healthy credit score is a time-consuming and gradual process, and consistent repayment discipline matters more than a one-time debt clearance.