How Long Does a Paid Off Loan Stay On Your Credit Report?

If you’ve paid off your loan, you might be wondering, how long does your paid off loan stay on your credit report? We will answer this question in much detail below.

How Long Does a Paid Off Loan Stay On Your Credit Report?

A paid off loan that is in good standing stays on your credit report for 10 years, boosting your credit score. However, a loan that has been paid off but has a delinquency such as a late payment remains on your credit report for 7 years from the date of the first delinquency or missed payment. So, even if you paid off your loan, it will remain on your credit report for years after it has been paid off. That said, the impact it has on your credit score will begin to lessen as the paid off loan ages and eventually falls off your credit report.

Paid off loans remain on your credit report for years after you’ve paid them to off to serve as a guide to future lenders and creditors as to how you managed debt in the past. If you’ve managed it will, the record will remain on your credit report for 10 years. However, if you’ve made late payments or missed payments, the paid off loan account only remains on your credit report for 7 years from the date of your first missed payment.

People often mistakenly believe that only active accounts stay on your credit reports, but the truth is that even accounts that are paid off, such as loans, remain on your credit report for long after the account has been paid off or closed. Any notes, negative or positive, remain on your credit report for years after the loan or account has been paid off or closed. Even credit cards remain on your credit report for years, long after you’ve paid them off.

Why Do Paid Off Loans Remain On Your Credit Report After They Have Been Paid Off?

Paid off loans and credit cards stay on your credit report for years after you’ve paid off to serve as a record for future lenders and creditors, showing them how you’ve handled paying off your debts. If you’ve made all of your loan payments on time, your closed loan account will continue to appear on your credit report for 10 years after you’ve paid it off, serving as a record to future lenders that you’re capable of repaying your debts as originally agreed upon between you and your lender.

However, if you’ve missed even a single payment on your loan and had a late payment reported on your credit report, the loan will only appear on your credit report for 7 years from the date of the first missed payment. Loans with missed payments are reported on your credit report for 7 years to show lenders that you’ve missed a payment on your loan account, serving to show them how you’ve handled repayment of your loan.

Can You Remove a Paid Off Loan Account From Your Credit Report?

If you have a paid off loan that’s in good standing, you should not attempt to have it removed from your credit report. This is so because paid off loans in good standing continue to help your credit score long after they’re paid off. Also, they serve as evidence that you’ve responsibly handled paying off your debt, which is something that lenders like to see. So, the paid off loan may help you obtain future loans, credit cards, auto finance, and other types of debt.

That said, if you have a paid off loan where the account is not in good standing because of late payment or other negative items, you can try to dispute the account to have it removed from your credit report. However, disputing a valid paid off loan account that belongs to you and has no inaccurate information reported is difficult if not impossible to remove.

Only paid off loans where there is some incorrect or inaccurate information can be removed from your credit report. As soon as you file a dispute, the credit bureaus have 30 days during which to conduct an investigation to verify the accuracy of the information being reported to them. If the investigation reveals that something is incorrect the paid off loan may be removed from your credit report. However, if the investigation reveals that the information is accurate, the credit bureaus will not remove it from your credit report.

To check your credit report, you should request a copy of your credit reporting the three major credit reporting bureaus (Experian, Equifax, and Transunion). There are plenty of free and paid services online that will allow you to review a copy of your credit report. A quick Google search for “check credit report ” will provide you with dozens of options to choose from. Make sure to select a known service provider to avoid theft of your personal information.

How Long Does It Take For a Paid Off Loan to Appear On Your Credit Report?

When you pay off a loan account, it can take up to 30 to 45 days for your lender to report your account status to the credit bureaus. Usually, lenders report your account status to the credit bureaus at the end of your billing cycle. So, it could take up to 30 to 45 days for the status of your account to be updated on your credit report. It could take significantly less depending on where you are in your billing cycle.

Why Did Paying Off My Loan Lower My Credit Score?

Paying off your loan can cause a drop in your credit score for several reasons, let’s explore those reasons:

  1. Credit Mix – Paying off a loan effectively closes an installment account, which can reduce your credit mix (diversity of accounts, credit cards, mortgage, student loan, etc.). Whenever you pay off a loan, you’re effectively closing an account thereby reducing the diversity of debt accounts that you have on your credit report, which can lead to a slight and temporary reduction of your credit score.

  2. Only Account With a Low Balance – Paying off a loan typically means that you’ve closed an account that had a low balance. Closing an account with a low balance can lower your credit score. So, this might be the reason for the small drop in your credit score. This is so because your credit utilization accounts for 30% of your credit score, the lower your credit utilization or usage, the better your credit score will be because it impacts your score. However, continue to make payments on your other accounts and your credit score should rebound within a short period of time.

  3. Other Reasons – Even though you may attribute the drop in your credit score to paying off your loan, your credit score may have dropped for a variety of other reasons, such as increasing balances on your other accounts, or applying for credit cards and loans even if you’re not approved. That said, keep in mind that small drops in your credit score are normal, and so long as you continue making your payments on time and paying down your account balances, your credit score should recover quickly.

How Long Does It Take For Your Credit Score To Go Up After Paying Off a Loan?

Paying off a loan can actually temporarily lower your credit score because it may decrease your credit mix, especially if it’s the only installment account that you had on your credit report. Additionally, your credit score may go down after paying off a loan because it increases your credit utilization. This is especially true if your loan was substantially paid off when you made your final payment. That said, if you noticed a slight drop in your credit score without any negative marks on your credit report, chances are that the drop is temporary in nature and your credit score will rebound within a short period of time. The amount of time it takes your credit score to go up depends on how you handle your other debts, whether you make your payments on time, how much more debt you accumulate, and whether you apply for new accounts. If you simply continue to make your payments on time and reduce your debt, your credit score should recover within just a few months.

If you have any general questions or comments about how long a paid off loan remains on your credit report, please feel free to leave them in the comments section below.