What will happen to my credit if I pay of my student loans in one lump sum payment
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My current score is pretty much average. Would re-paying my student loans in one payment and becoming debt free will help my credit? Thank you
It won’t have any negative effect, but it also won’t build you good credit
Paying off your student loans in one lump sum is actually a bad idea (with respect to credit score). It WILL save you a lot of interest, though.
Installment loans build credit by making monthly payments over time. Paying off student loans early does nothing extra for your credit, because they do not count in your credit utilization. Stopping the payments simply means that you have no positive information on your file, so your credit score won’t improve.
Sometimes it is just smarter to think with your pocketbook and not worry about credit scores. You can build your credit using a (secured) credit card just the same. Much cheaper than paying interest on your student loans. Use the card for regular purchases, wait for the statement, and pay the balance in full every month. That will build your credit and avoid interest.
So if you want to pay off your student loans on one payment just to improve your credit, don’t. If you’re doing it because of other financial management considerations – go ahead.
Good luck
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