Whether you've been diligently working hard to build your credit score or you're hoping to secure a line of credit, you'll want to know your latest rating. But just how current is your data? How often does your credit score update?
Credit scores are typically calculated on-demand when your credit report is requested. However, lenders usually only report to credit bureaus once a month (and not necessarily on the same reporting schedule), so some transactions that affect your score may not reflect on your credit report yet.
Scoring models like the FICO Score won't generate a credit score based on stale information at all. In fact, at least one account must have been updated within the last six months. In addition, the frequency with which information updates depends on where it resides: a) at one of the three main credit bureaus (TransUnion, Equifax, and Experian) or b) at alternative predictive and regulatory-compliant sources like banks. While some of these lenders update monthly, others update daily or at other frequencies.
What if you've paid off debt? How long before it impacts your credit report? Can you ask for an update in your score to reflect this kind of positive change immediately? In this post, we'll explore these key questions and more so that you know what to expect when viewing your report.
How Long Does It Take For Credit Score To Update After Paying Off Debt?
Generally, you can expect to see a change in your credit within 30-60 days. However, this timeframe tends to fluctuate based on three things:
- The type of debt in question
- Your unique credit portfolio (i.e., the specific characteristics)
- Your creditor's reporting schedule
It's important to note that reporting is a voluntary process. Creditors aren't legally obligated to report at all, so it's their prerogative to decide when and how they will do it. In addition, some creditors may choose not to report to all three major credit bureaus but rather only to one or two. As a result, your credit score will more than likely differ depending on the source.
How Many Points Will Your Credit Score Increase After Paying Off Debt?
Predicting how much a credit score will improve without having a full picture of your credit profile is near to impossible. There are simply too many variables.
The five main factors that impact a score include how well you manage your accounts (payment history), how many different types of credit you have (credit mix), how much you owe in comparison to your total available credit (credit utilization), how long your credit history is (account age), and how many new accounts you've applied for recently (new credit). Paying off debt impacts each of these variables in different ways, so the gain in your credit score could be minimal or fairly significant.
Anecdotally, some consumers claim to have achieved anywhere up to a 100 point boost in their credit scores after paying off debt. You're also likely to find that unless you're paying one lump sum to settle a big debt that has been on your credit report for years, such as a mortgage, the bump in your credit score may be negligible.
But there's a caveat:
While paying off debt can feel like a monumental win, there's a chance you could be in for a nasty little surprise. Instead of boosting your credit score, paying off debt can sometimes have the opposite effect by lowering it.
Why Did Your Credit Score Drop After Paying Off Debt?
A credit score can drop for numerous reasons, but most people don't expect it to drop after eradicating debt. After all, creditors want to be paid what they're owed, right?
The problem lies in the way credit scores are calculated. As mentioned, paying debt affects various factors that contribute to your score in a multitude of ways. For example:
- You eliminated your only revolving debt or installment loan: A key factor that most scoring models use when determining a credit score is credit mix. Lenders like to see that you have a diverse credit portfolio as evidence that you can manage several types of debt. Eliminating a particular debt could reduce your credit mix, effectively taking a bite out of your credit score.
- Your overall credit utilization increased: Your credit utilization ratio is the amount of debt you're using set against your total available credit. If you pay off debt and close the account, you're decreasing your total credit available. If you still have balances on other accounts, this will increase your utilization ratio and reduce your credit score. Ideally, you'll want to ensure your credit utilization ratio will stay below 30% when you pay off debt.
- Paying off debt changed your credit history: The longer you have an account, the less risky you seem to lenders. When you settle a debt and close the account, you can expect a decrease in your credit score once the account no longer appears on your report. Fortunately, some scoring models will continue to include positive accounts for up to 10 years and negative accounts for up to seven years in their calculations.
In all likelihood, you'll need to wait to see the full impact of paying off debt on your credit score as the effects won't be immediate. This is why it's important to monitor your score and check for updates regularly.
Can Paying Off Collections Improve Your Score?
Contrary to popular belief, settling a debt that went to collections won't boost a credit score. You can expect that any points you've lost will eventually be regained, provided all other variables remain the same, but this kind of negative blemish on your credit report can take seven years to clear away.
Can You Request For Your Credit Score To Be Updated?
Yes and no. Unfortunately, the answer isn't as simple as contacting your preferred credit bureau and asking them to update your score. They can only keep their data as relevant as the latest information lenders provide to them.
On the other hand, lenders don't have any real-time connection to credit bureaus, so they typically report your account information once a month after the billing cycle ends. This delay can make waiting for your credit score to reflect transactions like payments you made during the month rather frustrating—even more so if you miss the billing cycle cutoff date by a day or two.
The good news: there's no harm in asking a lender to forward updated data to credit bureaus if possible. You might receive a canned version of "we're unable to" as a response, but you never know until you try.
But what if you urgently need an updated score for obtaining credit approval or getting a lower interest rate on a time-sensitive application?
In this case, consider requesting a rapid rescore.
What Is A Rapid Rescore?
Although it's mostly used for securing a mortgage loan (but can be used for other lending purposes), a rapid rescore is a one-time credit report and score analysis created when a lender submits proof to credit bureaus of updates or recent changes to your account information that's not yet reflected on your credit report. This includes adding positive account changes, as well as removing erroneous or negative information from your credit profile.
Beware, though; rapid rescoring is not a method for repairing credit—it's merely an expedited way to get vital information to credit bureaus. It offers the perfect option if you need to raise your score quickly. However, only lenders can request one.
When Should You Ask For A Rapid Rescore?
A great time to request a rapid rescore is when your credit score falls within a few points of what's needed to qualify for better interest rates or loan terms. It can also help get inaccurate entries removed from your report fast. For example, if your report states you defaulted on a loan when you didn't, you can submit proof to have the error removed within days. This is much quicker than going through the normal channels to dispute incorrect entries. However, if you legitimately went into default on a loan, a rapid rescore won't make it go away.
How Much Does A Rapid Rescore Cost?
Fees run anywhere from $20 to $100, but you'll be happy to know this expense doesn't come out of your pocket—at least not upfront or directly. By law, lenders are required to foot the bill for rapid rescores. However, since they're running a business, they'll make their money back in interest rates and closing costs related to the loan. At the very least, it's not going to cost you if you don't get approved.
Ultimately, the data that goes into calculating your credit score can be as recent as a transaction reported by your lender today. The best way to ensure you have the most updated information is to ask each of your credit providers when they report to credit bureaus so that you can keep ahead of billing cycles. This way, you'll know how accurate your score currently is and whether you need to take action to improve it.
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.