Can Paying Off Credit Card Debt Hurt Your Credit Score?

Paying off credit card debt will not hurt your credit score in the long run. In some cases, you may see a short-term drop of roughly 10 to 30 points, and that dip goes away once your next statement posts and your updated balance reports to the credit bureaus.

If your credit score drops after paying off debt, don’t fret. Depending on how your debt was paid off, this could be an expected result, and it doesn’t mean it will last. We’ll cover when paying off credit card debt can decrease your score, when it can help your score and why it’s usually the right move even if there’s a temporary dip.

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Key Takeaways

• Can paying off debt hurt your credit score? Only temporarily, if at all: You might see a short-term dip of about 10 to 30 points, but it typically recovers within one to two billing cycles.

• Paying off a credit card usually helps: It lowers your credit utilization, which makes up 30% of your FICO score.

• Closing a paid-off card is what tends to sting: It shrinks your available credit and can shorten your average account age, so keeping it open is often better.

• Installment payoffs can cause a small dip: Clearing your only auto or personal loan changes your credit mix, which is just 10% of your score.

• Payment history matters most: At 35% of your FICO score, on-time payments do more for your credit than any single payoff.

• The dip is never a reason to stay in debt: Recovery is short-term, and paying off what you owe is almost always the right long-term move.

Summary generated by AI, verified by MoneyLion editors

Why Your Credit Score Can Temporarily Drop After Paying Off Debt

Three main reasons can cause a short-term dip of about 10 to 30 points.

• Credit utilization shifts: Credit utilization rate makes up 30% of your FICO score. Paying off one card is good, but closing it can raise your overall utilization on remaining cards.

• Credit mix changes: Credit mix makes up 10% of your FICO score. Paying off your only installment loan can remove the one non-revolving account from your file.

• Average age of accounts drops: Length of credit history makes up 15% of your FICO score. Closing an old card can shorten your average account age over time.

Most people see their scores return to prior levels within one to two billing cycles once new balances are reported to Equifax, Experian, and TransUnion.

Credit Card vs. Installment Loan Payoff: How Each Affects Your Score

Can Paying Off Debt Hurt Your Credit Score? 

Does credit card debt affect your credit score? Yes, and paying off debt can lower your credit score temporarily, but this isn’t always the case. The effect on your credit score depends on the type of debt you’re paying off: revolving debt like a credit card, or installment debt like a personal loan. 

Beyond that, knowing what affects your credit score and your credit card debt relief options goes a long way in determining which direction things may go. 

Why Paying Off Credit Card Debt Usually Helps 

To understand why a credit score goes up and down in relation to debt payments, consider your credit utilization rate, which makes up 30% of your FICO score. Having a lower credit utilization rate means your debt is low relative to the amount of credit available to you, and this can improve your credit score.

But the relationship between paying off credit cards and credit utilization can cut both ways. When you pay off debt, you’re freeing up more of your credit line, which will improve your credit utilization ratio. But if you close the credit card after paying off that debt, you’ll also have less credit available to you overall, which could damage your overall credit utilization. 

Another factor in how credit scores are calculated is the average age of your accounts, with older accounts being an advantage, so closing an older account could drop your score in this way as well. You don’t necessarily have to close a credit card account after paying off your debt, though, so this is often avoidable. 

The main thing to remember is that, unlike other debts, such as installment loans, paying off credit card balances is generally a positive move for your overall financial health and credit score in the long run.

Why Paying Off Debt Can Sometimes Cause a Temporary Drop 

Many people wonder, “Why did my credit score drop after paying off a loan?” If you’ve just started researching how to get out of credit card debt, this may seem like a cruel trick. But the good news is that it’s usually nothing to worry about.

Some people may see a temporary drop in their credit score after payoff if the debt they’re resolving is from an installment loan. Credit mix is a factor in your credit score, and when you pay off a personal loan, it no longer contributes to your credit mix. 

However, it’s worth noting that credit mix accounts for only 10% of your FICO score, compared to credit utilization, which accounts for 30%. So the change to your credit mix isn’t a reason to hold off on paying down loan debt.

Credit Cards vs. Installment Loans: Why the  Difference Matters 

If you pay off debt from a revolving credit line, like a credit card, you’ll probably improve your credit utilization ratio, which is one of the largest factors that impact your score. 

But with installment loans, where you pay the money off in equal monthly chunks, the account closes automatically when it’s fully paid off, so you have no choice in the matter. This could impact your credit mix and slightly decrease your credit score in the short term, even though paying off debt was the right financial decision.

How Long Does the Temporary Dip Usually Last? 

According to Experian, credit scores typically recover within one to two months after paying off revolving debt, such as a credit card balance. That’s enough time for your lower revolving credit balances to be reported to the credit bureaus and positively impact your credit utilization.

For installment debt like a personal loan, you could see a credit score dip when you pay it off, but it should bounce back within a few months, provided your finances don’t change in other ways.

Keep in mind that larger increases in your credit score may take longer than a few months, since the most important factors contributing to your score focus on longer-term patterns like payment history and amounts owed.

What Else May Be Affecting the Score at the Same Time 

If there are multiple moving parts in your financial picture around the time you pay off your credit card debt, your credit score may drop due to other reasons. 

For example, if you pay off a credit card account but apply for a new line of credit, your score will dip a few points from the hard credit inquiry, and it could dip further if you accrue a high balance on this new account. Closing another account, such as a credit card you no longer use, could also impact your score in a way that has nothing to do with paying down your debt.

What To Do if Your Score Drops After Paying Off Debt 

If your credit score drops after paying off debt, don’t panic. It’s often an expected result of closing an account or reducing your average account age or credit mix. The temporary dip that you see is not worth staying in debt over, and in the long run your credit score will recover, all else being equal.

Payment history makes up 35% of your FICO score, so continue making all your payments on time, and keep your credit utilization below 30% whenever possible. 

Also, keep a close eye on your credit report in the months after you pay off a debt to check for reporting delays or errors that can result in an inaccurate score.

Bottom Line 

So, can paying off debt hurt your credit score? Counterintuitively, yes, but the effect is usually short-lived, and it almost never means it was a bad idea to pay off what you owed. Keep in mind that it can take a few months for your credit score to recover from a temporary dip in this case, and that making on-time payments and maintaining a lower utilization rate can improve your score in the long run.

FAQ: Can Paying Off Debt Temporarily Lower Your Credit Score? 

How many points does your credit score drop after paying off a credit card?

Most people see a drop of about 10 to 30 points, and only if the account is closed or the payoff changes your credit mix. Scores usually recover within one to two billing cycles.

Does paying off a car loan hurt your credit score?

Paying off a car loan can cause a small dip of about 10 to 15 points if it was your only installment loan, since your credit mix changes. The paid loan stays on your report as a positive tradeline for up to 10 years, according to Experian.

Why did my credit score drop after paying off all my debt?

Your score can drop if you closed the account, if your credit mix narrowed to only revolving or only installment debt, or if your average account age fell. The dip is short-term for most people.

Should you close a credit card after paying it off?

Keeping the card open is usually better for your score. An open, paid-off card lowers your overall utilization and keeps your credit history longer.

How long does it take for your credit score to go up after paying off debt?

Most scores update within 30 to 45 days, once your card issuer or lender reports the new balance to Equifax, Experian and TransUnion.

Does paying off collections raise your credit score?

It depends on the scoring model. FICO 9, FICO 10 and VantageScore 3.0 and 4.0 ignore paid collections, according to FICO and VantageScore. Older models like FICO 8 may still count them.

Key Terms

• Credit utilization: The share of your available credit in use; it makes up 30% of your FICO score.

• Credit mix: The variety of account types on your file, worth 10% of your FICO score.

• Revolving credit: Open-ended credit like a credit card, where your balance and utilization change month to month.

• Installment credit: A loan repaid in fixed monthly payments, like an auto or personal loan, that closes when paid off.

• Average age of accounts: How long your accounts have been open on average, part of the 15% length-of-history factor.

• Payment history: Your record of on-time payments, the largest FICO factor at 35%.

• Tradeline: Any account listed on your credit report, which can stay on file as a positive entry after payoff.

• Hard inquiry: A lender's credit check when you apply for new credit, which can dip your score a few points.

Sources

• myFICO: What's in my FICO Scores? 

• CFPB: Why did my credit score change? 

• CFPB: What is a credit utilization rate? 

• myFICO: Credit checks and inquiries 

Summary generated by AI, verified by MoneyLion editors

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