How long after you pay off debt does your credit improve?

The daily financial decisions you make can either help or harm your credit.

Paying off debt accounts is a huge accomplishment that can impact your credit, but how long does it take to have an effect? The answer depends on the type of debt in question, the specifics of your credit portfolio and when the creditor reports the account’s status to the credit bureaus. 

Here’s what to expect as you pay off debt. 

Revolving accounts (credit cards)

A credit card can be a form of revolving credit, meaning money can be re-borrowed as it’s paid back, and there’s no end term. When you have an active revolving credit account, your balance plays a major role in your credit utilization ratio, which influences as much as 30% of your FICO® Score*.

Your credit utilization ratio measures how much of your available credit you’re using at any given time. For example, if you have one credit card that has a balance of $1,000 and a credit limit of $2,000, your credit utilization rate is 50%. Credit scoring models look at how much of your available credit you’re using both on individual cards and in total across all of your accounts.

There’s no magic number to aim for, but generally a credit utilization above 30% can drag down your credit score. Keeping your utilization below that rate can help you improve your credit.

When you pay off a credit card balance and keep the account open, you’re doing yourself a huge favor as far as your credit is concerned because you’ve reduced the amount of available credit you’re using. This boost from paying off an account can be seen on your credit report quickly; lenders usually report account activity at the end of the billing cycle, so it could take 30 to 45 days for it to impact your credit report. 

If you’re tempted to close the account, however, remember that you’d be giving up that line of available credit. If you carry balances on other cards, closing a credit card may increase your credit utilization rate, which can lead to lower credit scores. For that reason, you’ll typically get more benefit from keeping a paid-off account open. 

Installment loans 

Installment loans, such as mortgages or auto loans, have a set term with fixed monthly payments. Unlike a revolving credit account, once the borrower makes the final monthly payment, the account is closed.

For some, paying off a loan won’t affect credit scores much at all. For others, it may cause a temporary drop. This can happen if it was your only installment loan, since having a mix of different types of accounts helps your score, and losing your one installment account can bring it down slightly. Additionally, if it was your only account with a low balance, paying it off can hurt your score if the other active accounts are a long way from being paid off. 

Fortunately, any dips are usually temporary. Once the installment loan is paid off, your credit score should go back to where it was within one or two months. If your score doesn’t shoot up after paying off the loan, don’t despair: The paid-off loan will remain on your credit report for up to 10 years after the account closes. If your account was in good standing, having this positive history on your credit file can help your credit score in the long run. 

Negative items

Just as responsible spending and debt repayment can benefit your credit for years to come, negative items on your credit report can hurt your score. Most negative items stay on your credit report for seven years, but others can last a decade. Here’s what to expect:

  • Late or missed payments: When a late payment on a loan or line of credit is reported to the credit bureaus, it can stay on your report for up to seven years.
  • Collections: Debt that’s past due enough that it’s sent to collections will be noted on your credit report and remain there for seven years. Collection accounts can have a significant negative impact on your score. 
  • Bankruptcy: Filing for bankruptcy can significantly hurt your credit score, and for a long time. Chapter 13 bankruptcy remains on credit reports for seven years, while Chapter 7 bankruptcy sticks around for 10 years. 
  • Other negative marks: Credit reporting agencies can also report foreclosures, repossessions, and debt settlements for up to seven years since these all indicate that credit wasn’t paid back as agreed.

The bottom line

When you check your credit score once, you can see where you stand currently with each of these factors. That helps, but it’s even more beneficial to monitor your credit to get an ongoing look at how your financial behaviors shape your credit score. If your score needs improvement, remember the factors that impact your credit the most and try to make adjustments accordingly.

For more information about paying down debt and building credit, see the following articles:

*FICO® is a registered trademark of Fair Isaac Corporation in the United States and other countries.  Barclays and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. Barclays and Fair Isaac do not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating. FICO and “The score lenders use” are registered trademarks of Fair Isaac Corporation in the United States and other countries.

A credit score is a 3-digit number calculated using information on a credit report that serves as a numerical representation of a person’s creditworthiness. A credit report is a summary of your credit activity such as the payment history and status of your credit accounts which potential lenders use to offer you credit and on what terms. Your FICO® Credit Score and key factors are based on data from third-party providers who are not affiliated with Barclays. Barclays does not guarantee the accuracy of any credit information that is provided to you by these third parties.