Why Does Your Credit Score Take a Hit When You Pay Off Your Student Loans?
Conquer your student debt. Refinance now.
I just paid off all of my student loans – and my FICO took a huge, 40-point hit! What gives? I thought paying down my debt as quickly as possible (while still contributing regularly to an emergency fund) was the responsible thing to do? Shouldn’t my score go UP by 40 points when I prove I’m a low credit risk by paying my loans in full, earlier than expected?
Congratulations on completing your student loan payments! No matter what’s happened to your FICO score, that’s a huge accomplishment and not needing to make those monthly payments will free up more of your income to do things like invest, save, or treat yourself.
The TL;DR answer to Shouldn’t my score go up when I pay off my student loan debt? is: Not necessarily. Here’s why.
Why Do Final Payments on Student Loans Affect Your Credit Score?
When you pay off a loan and then close the related account, it can impact your FICO score in a couple of ways. (A quick refresher on your FICO score: The formula major credit bureaus use to calculate this number has multiple factors, including credit utilization, the length of credit history, payment history, and credit mix.)
