Why Did My Credit Score Drop After Paying Off Debt?

Paying off the student loan might sound to be the easiest and the best thing that you can do to make your monthly running income seem more in your hand. Although financially it may sound good to you, it still will affect your credit score negatively because:

By paying off the Debt, you will bring your credit utilisation percent to 0. A credit utilisation percent should be below 30% but not 0 for a good credit score.

By paying off debt, you will end the account activity. As there will be no account activity, the credit score will start decreasing. However, monthly installments keep the account activity running and thus keeps a healthy credit score.

Thus, these factors will lower your credit score.

Minimum credit score required for future loans might not be possible for you.

So even you have repaid your loan, you will have a low credit score, and this will affect your housing loan, vehicle loan or personal loan theta you might want to take in future.

So, avoid paying off debt, instead choose to pay installments on time without delay and keep your credit score high.

Also, do not take two loans at a time; this will allow you to pay installments regularly.

Additional Read: HOW MUCH IS THE DEBT CONSOLIDATION LOAN GOOD FOR YOU