How long after paying off debt does credit improve

By Nooreen B
Modified on June 7, 2023
how long after paying off debt does credit improve

Paying off debt can be a huge accomplishment for anyone! Usually, debt payments will take two months to improve a credit score. However, in certain circumstances it may mean hurting your finances. Keep reading for more information on paying off debt and how it can impact your credit scores. 

Why Does It Take a Few Months for Your Credit Score To Change After You Pay Off Debt?

Once you pay off your debt, your lender will report that last payment to all three credit bureaus. This information can take some time to be reported so, you may have to wait to see it on a statement. As most borrowers know, each month you have a billing statement that shows balances for that billing cycle. It will take an average of two billing cycles (about two months) for your payments to show up on your credit report. 

Different Debt and More Precise Approximates of How Long It Takes to Impact Your Credit Score

Generally speaking, two types of credit accounts exist; revolving credit and installment loan options. Revolving credit accounts include credit card debt, which you can borrow from multiple times as long as you haven’t reached your credit limit. If you do get to your limit, you can make payments to use the account again. With installment accounts you can only borrow from once, the funds will be repaid in monthly payments. A few examples include personal loans, auto loans, and payday loans. If you want to borrow more money, you will have to apply for another loan.

Revolving Credit Accounts

Payments to revolving credit accounts can take anywhere between 30-45 days to show up on your credit report and impact your credit scores. For most revolving accounts, paying off even a small amount can positively impact your credit score. This is because it will decrease your debt and at the same time increase available credit. 

Installment Loans

For installment loans, the average time they take to show up on your credit report is the same as revolving credit accounts. However, there may be little to no impact on your credit score, depending on how much you are paying back. 

When Can Paying Off Debt Hurt Your Credit Score?

There are some instances where paying debt may negatively affect your credit score. Here is more information on how that can happen: 

Closing Certain Account Types

Having a diverse credit mix is one factor that will impact your credit score. And so, closing a credit account that is unique to your credit history can harm your score. For example, paying off your only installment loan can reduce the diversity in your credit history/credit mix. 

The Age of Accounts

Another factor that will impact your credit score is how old your credit accounts are. The older your accounts, the more positive their impact on your credit score. And so, if you close a credit account that is one of your oldest, it can bring down your credit score. 

Closing Revolving Accounts Can Impact Credit Utilization Ratio

Your credit utilization ratio measures the debt you have against available credit balances. If you have a revolving debt paid off and close your account, it can decrease available credit balances, negatively impacting your credit score. So, even if you pay off your credit cards, consider keeping them open with your credit card companies.

Other Ways To Improve Your Credit Scores

Although paying your debt can definitely improve your credit score, there are other things you can do that will improve it! Here are some ways you can positively impact your score: 

Make Your Debt Payments on Time To Build Positive Payment History

On-time payments are the most effective way to improve your credit score or build one when starting from scratch. Several strategies can help make paying bills on time more manageable. For example, automating payments is a great way to ensure that your bills are paid on time. Making bill payments on time is important as late payments can stay on your credit reports for up to seven years.

Keep Your Credit Utilization Below 30%

Another way to improve your credit score is to keep your credit utilization under 30%; going over that can hurt your credit. You don’t have to do this right away if it’s not possible. However, paying even a little more than the minimum due can really help payoff debt faster. 

Avoid Multiple Credit Checks 

A hard credit inquiry on your credit report will negatively affect your credit score. And so, you should try and avoid having multiple credit inquiries in a short period. One exception is with mortgage applications, where borrowers have a 45-day period to shop around for lenders. Each credit inquiry within this window will show up as a single one. 

Correct Credit Report Mistakes

Your credit report will have all your credit history, which directly impacts your credit score. And so it is essential to ensure everything is accurate and up to date. If there are any mistakes, you need to correct them with the credit bureaus. You should also let your lender know about any inconsistencies and errors. 

What Makes up a Credit Score?

It will be helpful to understand what factors determine your credit score when you are trying to improve it. Below are all the different variables that make up your credit history that determines your credit score. In this scenario, a FICO score—the most commonly used scoring model—will be looked at:

Payment History

Payment history makes up the most considerable portion, 35%, of your FICO score. This includes the history of all the payments you have made or missed. With such a significant portion of your score based on this factor, it is crucial to ensure that you make your payments on time.

Accounts Owed

This makes up 30% of your credit score and includes all the debt accounts you have to pay back. It will consist of both revolving and installment credit accounts. 

Length of Credit History

The length of your credit history makes up 15% of your credit score. As mentioned above, the older your credit accounts, the better. The age of the oldest credit account on your credit report will determine how mature your credit history is. 

New Credit

New credit will count towards 10% of your credit score. Having many new accounts may not be the best look when applying for credit. And so, keep new credit accounts spaced out if possible. 

Credit Mix

Your credit mix also makes up 10% of your credit score. This variable looks at the different types of credit accounts that you have. For example, credit cards, personal loans, auto loans, and mortgages all show a good amount of variety with credit.

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