Which action is most effective in increasing a credit score?

Paying down existing debt is the most effective action in increasing a credit score because it directly impacts two critical components of credit scoring: credit utilization and payment history.

Credit utilization is the ratio of your current credit card balances to your total credit limits. Lowering this ratio by reducing balances signals to creditors that you are managing your credit responsibly, which can lead to an improvement in your score. Additionally, maintaining a consistent payment history by making on-time payments on any remaining debt enhances your credit score further. Both factors play a significant role in determining the overall creditworthiness evaluated by lenders.

On the other hand, applying for multiple credit cards can lead to a temporary decrease in your score due to hard inquiries, and it also increases your total debt burden if balances are not managed. Deferring payments does not address the underlying debt and may result in missed payment reports, negatively impacting credit scores. Using a high credit limit without managing your existing debt effectively could also lead to increased financial risk without improving your score if high balances are maintained. Therefore, the most effective step is to pay down existing debt for improving credit scores.