Will My Credit Improve After Paying Off My Student Loans?

Quick Answer

While your credit score may decrease after you pay off your student loans, this drop is usually temporary. Overall, paying off your student loans is a net positive for your credit score, especially if you always made on-time payments.

Will My Credit Improve After Paying Off My Student Loans? article image.
Dear Experian,

My student loans were just paid in full. Will this improve my credit score?


Dear STL,

Congratulations! Paying off your student loans is a great accomplishment, but how it will impact your scores can vary based on your unique credit history.

If the account was delinquent when it was paid off, no longer having an active past-due account may help your scores. If you always made your student loan payments on time, you may not see a big increase in your scores as a result of paying them off.

How Does Paying Off a Loan Impact My Credit?

Student loans, along with home mortgages and auto loans, are considered installment loans. An installment loan generally has a starting balance that's repaid over time with a fixed number of payments and a fixed monthly payment amount. Lenders view paying off student loans or any other installment loans positively, especially if they were always paid on time.

And while it's always good to pay off your debts, paying off an installment loan can sometimes result in an initial dip in credit scores. Since that account is now closed and no longer active, its on-time payment history won't contribute as heavily to your scores. The good news is that the decline is usually temporary. As long as you are using your other credit accounts responsibly and making all your payments on time, your scores should bounce back up within a month or two.

A paid-off loan shows lenders that you can be trusted to repay your debts, which is always a good thing. No longer owing that debt also means you have more disposable income, which can help you qualify for new credit in the future. While income information is not part of your credit report, how your debt obligations compare with your income is something lenders may look at during the credit approval process.

How Long Will My Student Loan Remain on My Report?

To give you credit for on-time payments longer, accounts that show no late payment history can remain part of your credit report for up to 10 years from the date they were closed. If the account history shows late payments, those delinquencies will be removed after seven years.

How Can I Improve My Credit Scores?

If you are trying to improve your credit, here are some steps you can take to begin increasing your scores:

  • Bring any past-due accounts current. Payment history is the most important factor in credit scores. If you have any accounts that are currently past due, bringing them current can help scores right away. Make sure all payments are made on time going forward.
  • Pay down high credit card balances. Utilization rate is a big factor in credit scores. Experts say to keep your utilization rate below 30%, but below 10% is even better. Ideally, you should pay your balances in full each month.
  • Order your free credit score from Experian. When you request your Experian credit score, you also receive a list of the top risk factors currently impacting your score. This helps you understand what specific changes you can make to begin improving your credit scores.
  • Sign up for Experian Boost®ø. With Experian Boost, you can get credit for your on-time utility, cellphone and streaming service payments by adding payment history for these accounts to your credit report, going back up to two years. This is especially beneficial for individuals who have thin files, or fewer than five credit accounts on their report.

Thanks for asking.

Jennifer White, Consumer Education Specialist