Credit Scores: A Timeline
Every billing cycle, typically every 30 to 45 days, your lenders are supposed to report changes to your accounts to the credit reporting bureaus — Equifax, Experian and TransUnion. Once that happens your credit reports will be updated with those changes and very soon after—practically instantly—your credit score gets recalculated, taking into consideration the updates on your credit report.
[Consumer Resource: Where Can I Get My Credit Scores for Free?]
Installment Versus Revolving Debt
Keep in mind that while paying down debt should help boost your credit score —certain types of debt don’t help as much as others. Paying down installment loans like a student loan, car loan or mortgage—while important to pay on time—doesn’t necessarily give your credit score a huge boost. Paying down revolving debt—such as credit card debt—on the other hand, plays a far bigger role in your credit scores and can boost your scores just by paying those balances down. Thirty percent of your credit score is based on your debt to credit utilization ratio, according to FICO, the primary company that crunches and calculates your credit scores. The debt used in that ratio is revolving debt, not installment debt. So while you may feel great for paying off the last penny on your student loans, it doesn’t necessarily improve your credit score by as much as, say, paying off a credit card balance.
If you’re curious why your score hasn’t changed since paying down a large amount of debt, I would first pull your credit reports from AnnualCreditReport.com — it’s free once a year — to see if your information has, indeed, been updated. If not, then you want to contact your creditors to make sure they report the activity to the credit reporting agencies and from there your score will immediately adjust based on the update.
[Consumer Resource: How to Order Your Free Annual Credit Report]
Sorry— I didn’t mean to bury the lead, but thought it was important to review the basics of credit scoring first. For those that don’t have stellar credit scores (say, below 700) you can ask a lender for what’s called a rapid rescore. This is basically an unscheduled update to your credit score and it’s typically made within 72 hours. It’s not free and can cost $30 to $50 per update, per account, per credit report. I would only recommend you do this if you need to improve your score in order to quickly qualify for a loan or a better interest rate on a loan.
Image by Caro’s Lines, via Flickr