How many points will your credit score go up when you pay off a defaulted student loan?

Answer

Initially, your score will only go up by 5 - 20 points, depending on the student loan balance, and whether or not you are transferring it to another lender. If the loan is in collection, you may actually lower your score by paying it off (see "Will Paying Off an Old Collection Lower my FICO Score" - another topic I discussed earlier on this board). Of course, over time, your score will improve greatly - especially in comparison to leaving a defaulted student loan on your credit history. But do not expect a tremendous increase just because a defaulted loan is paid. Paying off a loan does not erase the fact that the loan was in default. The history still stands, and will continue to effect your FICO scores until the 7 year statute of limitations has expired (though by that time, the effect on your FICO will be minimum, as it becomes diluted over time).

Hope this helps!

-Sometimes the 1st initial impact of paying off a debt, even a derogatory bad debt is a DROP in credit score. It is strange, however, paying off a debt essentially closes an account. And account closings could temporarily lower your score, especially an installment debt such as student loan. Nobody knows the FICO score formula for sure, it is intended to be a mystery on purpose or else millions of people would begin manipulating thier score and breach the score's ability to predict the future. However, installment debt, especially student loans may have a positive effect on your score if you simply continue to pay ON TIME instead of paying off completely.

First answer by Faqfarm1. Last edit by Faqfarm1. Contributor trust: 123 [recommend contributor]. Question popularity: 140 [recommend question]