Although it only seems fair that after working hard to pay off your debt you should immediately see a spike in your credit score, there are factors at work that dictate how fast and how much your credit score will go up. In general, however, it usually can take one or two months for lenders to report the payment.
One of the biggest factors to consider is your credit utilization, which is the amount of credit you’re using compared to the amount of credit you’ve been extended by lenders. If you pay off a credit card and immediately close it, you probably won’t see an initial spike in your credit score because you’ve effectively shut down a line of credit. Instead, keep the credit card open, but don’t use it. This way, the ratio of how much you owe will be lower than how much credit you have. Because credit cards tend to have the highest interest rates, however, focusing on paying those off can help your credit score more quickly.
Depending on the scoring model the lender follows, paying off collection accounts is also often received favorably and can have a quick impact on your score. Just like if you close a credit card account, when you pay off a car loan or your mortgage, those accounts close and may result in a dip in your credit score, but this is only temporary. Within a couple of months, you should see your credit score improve.
There are two major credit scoring companies: FICO and VantageScore. While they have different models, both models place a heavy emphasis on payment history and amount owed. To get your debt under control, looking into a debt management program is a great first step. Credit counselors can work with lenders to lower your interest rates and consolidate your loans into one affordable monthly payment.
Regardless of whether it takes a month or two to show your credit score improving, it will happen as you pay off your debt, making it easier to apply for a loan, buy a house or car, and ultimately, live free of the burden of debt.