Will Paying Off an Unsecured Loan Raise My Credit Score?

Reader Question: Will paying off an unsecured bank loan immediately raise my credit score?

Making regular payments on the loan over time will certainly help your credit score. But paying the loan off completely won't make as much of a difference. Only one way to find out, if you're really curious -- check your score about a month after you pay off the unsecured bank loan, and compare it to where it was before.

Check out the FICO scoring chart here on this website, and you'll see that payment history influences your credit score more than any other single item. So if you've been making your payments on time for the unsecured bank loan you have, that's a big plus.

With that being said, the most important thing is to ensure the account gets removed from your credit reports after you pay off the unsecured bank loan. Or, if the account still appears on your report, the status should be changed to reflect the fact that you paid it off. In other words, you want your reports to paint an accurate picture of your financial status.

Paying the loan off will also help you improve your debt-to-income ratio (if your income stays the same), because you'll be eliminating one of your debts. And this alone is worth striving for. Your DTI ratio is one of the top three things a mortgage lender will look at when reviewing you for a home loan.