Should I Pay Off My Student Loan or Credit Card First?

Dear Experian,

Does paying off a student loan positively impact a credit score as much as paying off a credit card account?


Dear FTB,

It depends. Many factors determine how much impact paying off any one account will have on your credit scores. In some instances, paying off debt may result in a temporary decrease in a credit score, but it typically rebounds quickly.

A key factor may be whether your accounts are up to date. If your student loan is in default, or your credit card bill is past due, that delinquent history may also contribute to how much your credit scores change once you pay it off.

All types of accounts, when paid as agreed, benefit your credit history. Installment loans, which include student loans, can help you build a positive credit history if you pay them on time and in full.

Your Credit Cards Tell Lenders a Lot About How You Manage Debt

Credit cards can weigh a bit more heavily into credit scores depending on how you manage them. Unlike with a student loan, you decide how much to charge on your credit card each month and how much of the debt you are going to repay each month. You can charge very little, or use all your available credit. In addition, you can pay the balance in full, only the minimum due or something in between. These decisions can all affect your credit scores.

If you currently carry a high balance on your credit card, paying it off can have a significant positive impact on your credit scores because it lowers your credit utilization. Your credit card utilization rate is the second most important factor in credit scores, right behind whether you make all your payments on time.

Your utilization rate, also called balance-to-limit ratio, is calculated by adding up all the balances on your credit card accounts and dividing that number by the total limit of all your credit limits. The lower your utilization rate, the better for your credit scores. Ideally, you should pay your credit card balances in full each month. Installment loans, including student loans, don't figure into credit utilization rate.

What Do Your Risk Factors Say?

When you order your credit score from Experian, it comes with a list of the top factors affecting your credit score, called risk factors. If your current credit card balances are hurting your credit, you may see a statement like "balances too high on revolving accounts." This lets you know that paying down those balances should help increase your score.

Paying close attention to your risk factors will help you make informed decisions when trying to improve your credit scores.

Improve Your Credit Scores With Experian Boost

You can also increase your FICO® Score instantly by enrolling in Experian Boost, a free service that lets you add your positive monthly payments on utilities and telecom accounts to your credit report.

When you sign up, you agree to give Experian permission to access the checking account, savings account or other demand deposit account through which you pay your bills each month.

Once you verify the information is correct, Experian adds the payments from the service providers you specify—going back up to 24 months—to your credit history. You will receive a FICO 8 Score at the start of the process and an updated FICO 8 Score when you complete the process, so you can see whether your score improved and by how much.

The entire enrollment process takes only minutes. It is secure and permission-based. If you change your mind, you can have Experian stop collecting your payment information.

You can learn more about Experian Boost on our blog.

Thanks for asking,
Jennifer White, Consumer Education Specialist

This question came from a recent Periscope session we hosted.