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How Quickly Will Paying Off an Account Affect My Credit Score?

Dear Experian,

When you pay off an account, how does it take your credit score to change?

- XYZ

Dear XYZ,

When you pay off a credit account, the lender will update their records and report that update to Experian. Lenders typically report the account at the end of its billing cycle, so it could be as long as 30 to 45 days from the time you pay the account off until you see the change on your credit report.

If you have paid off an account recently, check your credit report to see if the account already has been updated. Once the account shows paid on your report, you can then order a new credit score to see how it has changed.

How Will Paying Off an Account Change My Credit Score?

How paying off an account will impact your credit scores depends on your credit history as a whole as well as the type of account that is being paid.

Paying Off a Collection Account

If the account you are paying off is a past-due collection account, you may not see an immediate credit score increase once it's paid off. Whether you see an increase in credit scores depends on the scoring model being used and on the rest of your credit history. Some credit scoring models exclude collection accounts once they are paid in full, so you could experience a credit score increase as soon as the collection is reported as paid.

Most lenders view a collection account that has been paid in full as more favorable than an unpaid collection account.

Furthermore, when it comes to applying for credit, employment or even renting an apartment, you will likely have an easier time qualifying if any collection accounts that appear on your credit history are paid in full. This shows that although you may have had financial difficulties in the past, you have since taken care of any debts owed. For instance, most mortgage lenders will not approve you for a home loan until any past-due accounts have been paid off, no matter how small the dollar amount.

Paying Off an Installment Loan

While it's always good to pay off debt owed, paying off an installment account, such a home or car loan, may result in an initial dip in credit scores since that account is now closed and no longer active. The good news is that any decline is temporary and scores should bounce back up within a month or two.

Paying Off a Credit Card Account

If the account in question is a credit card, paying that balance can improve your credit scores quickly. Just keep in mind that it's usually best to keep revolving accounts open even after you've paid them off. That's because your utilization rate is the second most important factor in credit scoring, right behind making all your payments on time.

Your utilization rate, or balance-to-limit ratio, is calculated by taking the total of all your credit card balances and dividing that number by the total of all your credit card limits. Multiply by 100 to see your rate as a percentage The lower the utilization rate, the better for your credit scores—think single digits for top scores. Closing a credit card removes that available credit from the calculation, potentially causing your utilization rate to increase, which in turn can cause your credit score to go down.

Thanks for asking.

Jennifer White, Consumer Education Specialist

This question came from a recent Periscope session we hosted.

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