Will My Credit Score Go Up Now That I Paid Off My Student Loans?

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Dear Experian,

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

-SLQ

Dear SLQ,Paying off your student loans is a great accomplishment. Once your lender notifies the credit bureaus that the loans are paid in full, you will see them updated to reflect that on your credit reports. How this change will impact your credit scores can depend on several factors, such as your account history prior to paying off the loans and your overall credit situation. If your account is in default when paid off, you may see an increase in scores, but it's also possible to see a small dip in scores after paying off a loan. This is especially true if there are no other active installment loans in your credit history. However, this dip is usually temporary.

How Do Lenders View Paid-Off Student Loans?

A paid-off loan shows lenders you were able to manage the debt responsibly. If you always made your student loan payments on time, the accounts will remain on your credit report for up to 10 years from the date they were paid off and closed. This helps you get credit for your positive payment history. If the accounts were delinquent prior to being paid, they will remain on your credit report for seven years from the original delinquency date.

Paying off your student loans also means you likely 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, lenders will usually ask you to provide your income as part of the application process.

How Can I Increase My Credit Scores?

Whether you are trying to rebuild your credit after experiencing financial difficulty or trying to further establish your credit history now that your student loans are paid in full, here are some ways to begin improving your credit:

  • Make sure all accounts are current. If you have any debt accounts that are past due, bringing them current is key to improving your credit scores. Once current, make all your payments on time going forward. Your payment history is the most important factor in your credit scores, so how you manage payments can do the most to help (or hurt) your scores.
  • Pay off any outstanding collection accounts or charge-offs. Some credit scoring models no longer count collection accounts once they are paid in full, so paying off any collections on your credit report can help improve your scores right away. Some lenders require that collection and charged-off accounts are paid off before they will approve you for future credit.
  • Manage credit cards responsibly. If you have credit cards with high balances, paying them down will lower your utilization rate, which is good for credit scores. On the other hand, if you don't yet have a credit card account, consider opening one. Making small purchases and paying the balance in full each month will show lenders that you know how to manage your credit responsibly.
  • Focus on your credit score risk factors. Order your free credit score from Experian and get a list of the unique risk factors that are currently impacting your score. Improving on those factors will help increase your score.
  • Sign up for Experian Boost . Adding your on-time payments on utility, cellphone, and streaming service accounts can increase your Experian credit score. This is especially true if you have a thin file, or limited credit history.

More information on how student loans affect credit can be found on the Experian's credit education blog.

Thanks for asking.

Jennifer White, Consumer Education Specialist

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