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It’s common knowledge that a person’s credit score can have a significant impact on their ability to get the best deals on loans and credit cards. And those opportunities can potentially save borrowers many thousands of dollars over a lifetime. But exactly what the credit rating scale involves is a mystery to many people. That’s a problem for potential applicants who’d like to build their score before shopping around for a loan.

Read on to gain insights into how credit scores are calculated, what the different credit ranges mean, and what you can do to qualify for the best interest rates.

The Three Major Credit Bureaus

Credit bureaus are independent agencies that collect and maintain consumer credit information and then resell it to businesses in the form of a credit report. The Fair Credit Reporting Act allows the government to oversee and regulate the industry.

There are three major credit bureaus that most lenders pull data from:

•   Equifax®

•   Experian®

•   TransUnion®

Commonly used credit scoring systems are FICO® and VantageScore, each of which ranges from 300 to 850.

What Actually Factors into Your Credit Score?

Here’s a closer look at the popular FICO Score system, which uses a scoring model that sources data from credit bureaus to calculate your score. Elements used in the FICO scoring model (as of this writing, the latest version is FICO Score 10) include:

•   Payment history: 35%

•   Credit utilization: 30%

•   Length of credit history: 15%

•   Credit mix: 10%

•   New credit: 10%

Wondering what those terms mean? Here’s a closer look:

Payment History

Payment history looks at whether you pay your bills in a timely manner. Do you have a history of paying bills a couple weeks late, or are you the type who always pays your cable bill even before it is due? That’s the kind of thing that will come into play here.

Credit Utilization

“Amount owed” is pretty self-explanatory — it’s how much total debt you’re currently carrying. Your “credit utilization ratio” may not be quite so clear. That’s the amount of credit you actually use compared to the amount of credit available to you. Lenders generally like to see a credit utilization ratio of 30% or lower. Some even recommend no more than 10%.

Here’s an example: Say you owe $500 on each of two credit cards, and one has a credit limit of $1,000 and the other has a limit of $3,000. The amount you owe is $1,000 out of a credit limit of $4,000. So you are using 25% of your available credit. Your credit utilization is therefore 25%. 

Length of Credit History

This factor looks at the age of your oldest and newest accounts and the average age of all your accounts. To lenders, longer is better.

Credit Mix

Credit mix considers the variety of your debt — is it primarily credit card debt? Do you carry student loan debt or have a mortgage? A desirable mix is a combination of revolving debt (lines of credit, credit cards) and installment debt (loans with fixed repayment terms like student loans and car loans).

New Credit

New credit looks at what accounts have recently been opened in your name, or if you’ve taken out any new debts. Trying to access a considerable amount of credit in a short period of time can have a negative impact on your credit score.

Recommended: Credit Card Utilization: Everything You Need To Know

How’s Your Credit?

Where your credit score falls on the scoring table determines how “good” your credit is. Here’s a breakdown of the credit rating scale according to FICO standards.

•   Excellent or Exceptional: 800-850

•   Very Good: 740-799

•   Good: 670-739

•   Fair: 580-669

•     Poor: 300-579

Ready for a plot twist? Your credit score may not be consistent. Some reasons why:

•   There are different scoring systems, and variations in how various lenders and creditors report information. 

•   Also, FICO can tweak their algorithm depending on the type of loan you’re applying for. If you’re looking to get an auto loan, your industry-specific FICO Score may emphasize your payment history with auto loans and deemphasize your credit card history. In effect, each consumer has multiple credit scores.

•   You may also hear the phrase “educational credit score.” This can refer to the proprietary scoring models used by TransUnion and Equifax, not necessarily to be used by lenders, which can help educate consumers about their credit scores. Since they may or may not reflect the credit score that potential lenders use, it can be wise to make sure you know what kind of credit score you are viewing.

You are probably curious how your credit score stacks up to the national average. The average three-digit number in the U.S. is currently 714. 

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Trying to Build Your Credit Score With Credit Card Debt

You’ll notice that a lot of information around improving your credit scores focuses on debt reduction. After all, 30% of your FICO Score is based upon outstanding debt. By paying that down on time, you may be able to build your credit score. For this reason, one potential action item for those trying to have a positive impact on their credit history is to work on paying down credit card debt.

Credit card debt may be the highest-interest debt you’re carrying. Compare these numbers:

•   The average credit card interest rate on interest-accruing accounts with balances was 22.76% mid-2024, according to the Federal Reserve. 

•   A rate of 6.53% was established for federal undergraduate student loans for the 2024-2025 school year.

•   The average mortgage rate was 6.37% in September 2024 for fixed-rate, 30-year conforming loans. 

That means if you have credit card debt, it could be your fastest growing debt. By getting rid of it, you may be able to significantly reduce your outstanding debt. Here are a few techniques:

•   One way to get out of credit card debt is to consolidate it into a lower-interest option. With a balance transfer credit card, you can move your high-interest debt to a 0% interest card. The catch is that the 0% interest is temporary, and after a given amount of time (typically 12 to 21 months), the interest rate shoots up.

•   Another option is to take out a personal loan, which can consolidate multiple high-interest credit card debts into one monthly payment, often at a lower interest rate. For example, in September 2024, the average personal loan rate was 12.38% vs. almost 23% for credit cards, as noted above. Personal loans are typically unsecured loans with a fixed interest rate and terms of two to seven years. This could help you pay off your debt more quickly, which might help build your score. 

•   One other tip for potentially building your credit score: Thoroughly review your credit report for errors. Mistakes happen, and some of them can bring down your score. You can file a dispute online to correct or remove the information.

Recommended: Using a Personal Loan to Pay Off a Credit Card

The Takeaway

Credit scores, calculated based on information in your credit report, influence the interest rates you qualify for on loans and credit cards. The higher your score, the less you’ll likely pay in interest. The factors that determine your score include your history of on-time payments, your total debt compared to the amount of credit available to you, the types of debt you have managed, how much credit you have recently sought, and the age of your accounts. 

One of the best ways to build your credit score is to pay down credit card debt. A common way to consolidate high-interest credit card debt is with a low-interest personal loan. 

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

What are the levels of credit ratings?

The levels of credit ratings are typically:

•   Excellent (or Exceptional): 800-850

•   Very good: 740-799

•   Good: 670-739

•   Fair: 580-669

•   Poor: 300-579

How does the credit rating scale work?

Credit rating scales typically work by factoring in various indicators of an individual’s creditworthiness. For example, common components of your credit score will be your history of on-time payments, your credit utilization ratio, the length of your credit history, your credit mix, and how many new accounts you have applied for and how recently. These can indicate how well you have managed debt in the past and how likely you are to be responsible with credit in the future. 

How rare is a 700 credit score?

The current average credit score in the U.S. is 714, so a score of 700 or higher is not that rare. To be more specific, recent reports indicate that 17% of Americans have a score between 700-749, 24% are between 750-799, and 23% are between 800-850. In addition, credit scores tend to be higher among older generations.

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Yes, in most cases it’s illegal to check someone else’s credit report. The Fair Credit Reporting Act (FCRA) is a federal statute that defines and limits who can receive credit-related information. The act lists legal reasons why someone’s credit can be checked; therefore, it is illegal for an individual or organization to check someone’s credit report for any other purpose.

We’ll do a deep dive into when it’s OK to run a credit check on someone, and what to do if you suspect someone has pulled your credit report without permission.

Can Anyone Check Your Credit?

The short answer is no. Legally speaking, a person or organization can check your credit only under certain circumstances. Someone either needs to have what’s called “permissible purpose” or have your permission and cooperation in the process for the credit check to be considered legal.

Who Can Access Your Credit Report?

People and organizations that can legally access your credit report under certain circumstances include the following:

•   Banks and other lenders

•   Utility companies

•   Insurance companies

•   Landlords

•   Employers

Here’s more about each

Banks and Other Lenders

A financial institute can check someone’s credit in connection with credit-related transactions, such as when they apply for a mortgage or car loan. Note that section 609(g) of the FCRA requires financial institutions that arrange mortgage loans and use credit scores in their decision-making to provide the credit score and additional information to the applicant.

Utility Companies

Although it may not be commonly thought of in this way, applying for utility service is a form of credit. So when someone requests service from an electric company, the utility will likely check the person’s credit history. If the individual doesn’t have at least a fair credit score, the company can request a deposit or even deny service.

Insurance Companies

Insurance companies have permission to review an applicant’s credit information. Note that companies must also comply with state laws as they use the credit data to underwrite policies.

Landlords

The Federal Trade Commission notes that landlords have the right to review consumer credit reports when someone applies to rent from them or renews a lease. A landlord must certify to the credit bureau (such as Equifax, Experian, or TransUnion) that they will only use this information for rental purposes.

Employers

A potential employer can check an applicant’s credit report, although the company must give the applicant notice of their intent and get written permission. State laws vary regarding an employer’s ability to use this information as part of a hiring decision.

When Is It Legal to Run a Credit Report on Someone?

There are a handful of legal reasons to run a credit report on someone.

Permissible Purpose

This umbrella term used in the FCRA describes when a credit reporting agency can provide a credit report.

Proxy Ordering

“Proxy” is a legal term for someone with the authority to represent someone else. The only instance that isn’t proxy ordering is when a consumer requests their own credit report.

To pull your report, a proxy will need to get answers to questions that only you should know — information that comes directly from your credit report. This provides an extra layer of protection to ensure that your permission is freely being given.

Deceased Spouse

An individual can send a letter to a credit agency requesting the credit report of a deceased spouse. The surviving spouse will need to provide information about both parties so that the agency can verify identities and ensure that it’s OK to provide the credit report.

During Mortgage Underwriting

The FCRA notes that a financial institution can obtain a credit report for “extending, reviewing, and collecting credit.” This applies to mortgage underwriting as well as other types of loans.

Screening Job Applicants

With permission, an employer can request and review a credit report for the purpose of “evaluating a consumer for employment, promotion, reassignment or retention as an employee.”

During Insurance Underwriting

An insurance company can check a person’s credit report, with permission, as part of the underwriting process for a policy. The FCRA delves into specifics for different types of insurance: life, health, homeowners, etc.

Recommended: Does Net Worth Include Home Equity

Evaluating Prospective Tenants

The FCRA states that a potential landlord can pull a credit report with the prospective tenant’s permission.

Court-Appointed Guardians

Court-appointed guardians can request a copy of their ward’s credit report by mail. They must provide information about themselves as well as the ward.

What to Do if Someone Pulls Your Credit Without Permission

Contact the organization that pulled your credit to rule out that it was done in error. Then contact the three credit bureaus and request that any hard credit inquiries be deleted from your credit report.

You can also submit a complaint to the Consumer Financial Protection Bureau (visit https://www.consumerfinance.gov/complaint/), and ask for any problems associated with the inquiry to be resolved.

Who Can Check Your Credit Without Permission?

Government agencies may check your credit report to process an application for a license, to determine if you qualify for public assistance, or to calculate what a person can pay in child support, among other reasons.

If you already receive credit from a company, it may periodically check your credit report. Language giving them permission is likely in their terms and conditions. Debt collectors may also get access to information on credit reports.

Recommended: What Is a Tri-Merge Credit Report?

How to Know if Your Credit Was Checked

All hard inquiries will appear on your credit report for two years, so you can find the information there. Soft checks may or may not appear. Each year, you can get a free copy of your credit report — and find out your credit score for free — via AnnualCreditReport.com.

If you’re concerned about credit checks, consider signing up for a credit monitoring service.

What qualifies as credit monitoring varies from service to service; look for one that sends out alerts for new hard inquiries.

How a Credit Check Affects Your Credit Score

A soft inquiry will not hurt your credit score even if it appears on your report. A hard inquiry can lower the score by up to five points. Although the inquiry will remain on your credit report for two years, it will stop affecting your credit score after 12 months. Applying for several credit accounts in a relatively short amount of time may pose a greater risk. (Find out more about what affects your credit score.)

Can You Stop Someone From Getting Your Credit Report?

You can freeze your credit at all three bureaus, which will prevent them from sharing information with businesses that make inquiries. However, if you want to apply for a loan or otherwise conduct a transaction that requires a credit check, you will need to unfreeze your credit.

The Takeaway

The Fair Credit Reporting Act (FCRA) provides legal guidelines on who can and can’t check consumer credit reports. Certain individuals can check your credit with your permission, including landlords and employers. Banks, insurers, lenders, and utility companies may also pull a credit report if you’ve applied for credit or service with them. In some circumstances, government agencies may request your credit report without your permission. In general, an average citizen cannot check someone else’s credit report unless they are serving as a legal proxy.

Want to keep an eye on changes in your credit report? Consider downloading a money tracker app, which can alert you to fluctuations.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Can I sue for an unauthorized credit check?

Consult an attorney to discuss potential legal remedies. If you discover that your credit was run inappropriately without your permission, contact all three credit bureaus to ask them to remove the inquiry so that it doesn’t harm your credit score. You can also file a complaint with the Consumer Financial Protection Bureau at https://www.consumerfinance.gov/complaint/.

What is a violation of the Fair Credit Reporting Act?

There are multiple types of FCRA violations. They include instances when a credit bureau provides your information to someone who is not authorized to receive it, didn’t demonstrate a valid need for the data, or didn’t get your written permission in advance.

How do I find out who ran my credit?

You can get a free copy of your credit report from each of the three bureaus at AnnualCreditReport.com. Your credit report lists all hard credit inquiries from the past two years, and potentially some soft inquiries.

Photo credit: iStock/vitapix

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Both hard and soft credit inquiries can stay on your credit report for up to two years. However, their impact on your credit score can vary substantially based on your circumstances and the type of inquiry or inquiries you’re dealing with. For instance, soft credit inquiries usually don’t ding your score at all and are visible only to you on your credit report.

Read on to learn more about how long credit inquiries stay on your report and the effects they can have while there.

What Is a Credit Inquiry?

A credit inquiry is a request to look at your history of using credit. This occurs any time a prospective lender wants to take a peek to assess your creditworthiness and potentially extend you a loan or line of credit. Your credit file can show how well you’ve used credit in the past and whether, for example, you typically pay bills on time and have used different forms of credit (such as credit cards and installment loans) responsibly.

Credit inquiries come in two flavors: hard inquiries and soft inquiries.

What Is a Hard Inquiry?

A hard credit inquiry occurs when you officially submit an application for a credit card or loan. The vast majority of lenders will run a hard credit check in order to approve your application for these financial products.

Hard inquiries occur when you apply for a new loan or line of credit (say, a mortgage or a credit card). These hard pulls, as they are sometimes called, can have a negative impact on your credit score, particularly if you apply for many new loans or lines of credit at the same time. Lenders may see this behavior as a risk factor, since you might take out more credit than you can afford to pay back.

A hard inquiry can lower your credit score by about 5 to 10 points each. While these inquiries can stay on your report for up to two years, they may not have an impact after one year.

What Is a Soft Inquiry?

A soft credit inquiry may be pulled by a potential lender to prequalify you for a loan or determine your eligibility for a line of credit but without officially approving your application. Soft credit inquiries can also be part of employment background checks or be requested when you start services with a utility company. You might even pull your credit file yourself to review it for accuracy. That too is a soft inquiry.

The good news is that while they can stay on your report for up to two years, soft inquiries have no impact on your credit score. What’s more, they are visible only to you.

Exceptions to the Impact on Your Credit Score

As mentioned above, only hard inquiries can have an impact on your credit score. Additionally, it’s worth noting that even with hard inquiries, if you’re shopping around for a specific type of loan, you can take advantage of a rate shopping window. Here’s an example:

Say you’re getting ready to buy a house or a car. You may be focused on building your credit score and using a money tracker app to manage your spending and saving goals. When it’s time to shop around for the loan with the most favorable terms, a finalized rate may be available only with a fully completed application (including a hard credit inquiry). So you want to file multiple applications to see where you are approved with the best deal for your situation.

Fortunately, the credit bureaus treat multiple hard inquiries for loans of the same category as only a single inquiry. They do, however, need to be made within a certain time frame — usually between two weeks and 30 days, depending on the type of loan.

In this way, loan shopping may not have too serious an impact on your credit score.

How Long Do Credit Inquiries Stay on Your Credit Report?

Hard credit inquiries can stay on your credit report for up to two years. That’s true for soft credit inquiries, too. As mentioned above, hard pulls may impact your credit score only for a year, and soft pulls are visible only to you.

This maximum time frame of two years is substantially shorter than other markers, such as bankruptcy, which can remain on your credit report for seven or 10 years.

What Is the Difference Between a Hard and Soft Inquiry?

A hard inquiry is used to officially approve an application for a loan or line of credit, and it can have a temporary negative impact on your credit score. A soft inquiry is used in most other instances when your credit score is pulled. It does not have an impact on your credit score, nor is it visible to anyone but you.

How Much Does a Hard Inquiry Lower Your Credit Score?

Usually, a hard inquiry will lower your credit score only by five to 10 points (though the dip may be more meaningful if you’re working to build your credit). While the hard pull will stay on your record for up to two years, it often has a negative impact for only one year.

Note that your credit score updates generally occur every 30 to 45 days.

How Much Does a Soft Inquiry Lower Your Credit Score?

Trick question! Since a soft credit inquiry has no impact on your credit score whatsoever, it won’t lower it at all. In fact, as noted, soft pulls are not even visible to prospective lenders and will show up on your end only when you review your credit file.

How Do Hard Inquiries Affect Shopping for Loans?

Hard inquiries inform lenders that you’re actively shopping for credit. As mentioned above, if all that credit shopping is in the same category in a short amount of time, the effect is likely to be limited. However, if you’re perpetually shopping around for new credit (a personal loan here, a credit card there), lenders may raise an eyebrow. Too many applications for credit can ding your score.

Also keep in mind that the rate-shopping window doesn’t apply to credit cards. Every credit card you open will come with a hard credit check. The impact of this credit check is not mitigated because you submitted other credit card applications. In other words, multiple credit card applications in a short period of time may have a more lasting detrimental impact on your score than if you were shopping for a single mortgage.

How to Reduce the Impact of Credit Inquiries on Your Credit

Perhaps the simplest way to reduce the impact of credit inquiries on your score is to limit the number of inquiries requested. This means you would sparingly apply for loans and lines of credit only when you truly need to. Along with helping you avoid the negative impact of hard inquiries, keeping your credit use to a minimum can help ensure you avoid a debt spiral and stay in the best possible financial position to repay the loans you do have.

Can Inquiries on My Credit Report Be Disputed?

Credit score monitoring is important and can be done for free through several channels, including credit card companies, banks, and credit counselors.

It’s also wise to regularly review your entire file every few months to look for inaccuracies. If you notice a credit inquiry on your report that you don’t recognize, you can dispute it with the reporting credit bureau — and you should. You should also reach out to the financial institution that made the inquiry and inform them that it was not a legitimate request.

In addition, you can dispute any erroneous items on your report, such as an indication that a debt you paid off is still pending.

Recommended: Why Did My Credit Score Drop After a Dispute?

Can You Remove Credit Inquiries From a Credit Report?

The only way hard credit inquiries can be removed from your credit report is if they were made fraudulently. In this case, you should go through the process of filing a dispute with the reporting bureau, as outlined above. These days, most credit file disputes can be made online, but you can also file a dispute by mail.

Avoid Unnecessary Applications Prior to Applying for a Home or Auto Loan

Since hard credit inquiries can have a negative impact on your score, it’s a good idea to avoid applying for unnecessary lines of credit shortly before applying for a more substantial one, like a mortgage or auto loan.

Credit card applications in particular can be a slippery slope since they may be extremely easy to apply for and may offer rewards for doing so. If you’re planning for bigger financial moves in the near future, steer clear if you can.

Recommended: How to Lower Credit Card Utilization

The Takeaway

All types of credit inquiries stay on your report for up to two years, though only hard inquiries can have an impact on your score and are visible to others. Typically, a hard inquiry can lower your score up to 10 points; soft inquiries, on the other hand, have no impact. While credit card applications always lead to a hard inquiry, multiple applications for an auto or home loan in a short amount of time may appear as a single inquiry on your credit report.

As you consider your credit report, it may make sense to track your finances more closely. Tools like a spending app can help you set budgets, manage bill paying, and more.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Can you remove credit inquiries from your credit report?

Unless you notice fraudulent credit inquiries on your report, hard inquiries will usually stay on your record for up to two years, which is a relatively short time frame in the world of credit reporting. If you do see a hard inquiry you don’t recognize, dispute the inquiry with the credit bureau and the financial institution involved immediately. Worth knowing: Soft credit inquiries stay on your report for a similar period of time, but they are visible only to you.

How many hard inquiries are too many?

There’s no hard and fast answer to this question. Generally speaking, the fewer hard inquiries your credit report sees, the better. There is an exception when you’re shopping around for a home or auto loan. As long as all the hard inquiries are for the same type of financial product and are made within a relatively short time frame (usually 14 to 30 days), they’ll appear as a single hard inquiry and have only a single hard inquiry’s impact on your credit score.

How much will a credit score decrease for each inquiry?

While the specifics can depend on the rest of your credit file, generally speaking a hard inquiry will lower your score only about five to 10 points. However, if you apply for multiple credit cards or many different types of loans in a short period of time, the inquiries may have a more substantial impact, especially if your credit file is slim or imperfect.

Does your credit score go up when hard inquiries fall off?

Hard credit inquiries usually have only a slight impact on your overall credit score. While it’s possible you may see a small increase to your score when they fall off, other positive markers, like on-time payments and lowering total credit balance, are more likely to help build your score.

Photo Credit: iStock/Kateryna Onyshchuk
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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If you neglect to pay a bill for a significant period of time, your creditor may send your debt to a collection agency, which then seeks repayment from you. This can have serious — and lasting — repercussions for your credit score. Understanding how long collections stay on your credit report and how to manage them is essential for maintaining good financial health. Here’s a closer look at how debts end up in collections and how they impact on your credit.

What Are Collections?

Having a debt in collections typically means that the original creditor or lender has written your debt off as a loss and has sent it to a debt collector. The collector may be an internal team within the same company that goes after delinquent debts or a third party debt collection agency.

Most of your monthly bills (including credit cards, mortgage, auto loan, student loans, and utilities) can go to collections if you neglect to pay them for long enough. This means that bills that might not typically appear on your credit report (electric, phone, or cable, for example) could show up on your credit report as debts in collections.

There’s no set time frame as to when a lender or company will place a past-due account into collections. Generally speaking, however, creditors will wait until after 90 to 180 days of nonpayment before they will send your debt to collections.

What Happens if a Bill Goes to Collections?

Some creditors have in-house collection departments, but many will “charge off” your debt. This means the original creditor closes your account and sells your debt to a third-party collection agency. When your account is sent to collections, the balance on your original unpaid account goes to $0, and a new collections account will be added to your credit reports. Having a collection account on your credit report is one of the many things that can affect your credit score.

How Long Will Collections Stay on Your Credit Report?

Like other negative information, a collection account can remain on your credit reports for up to seven years from the date you first miss a payment to the original lender or creditor. Even if you eventually pay what you owe or settle with the company that owns your debt, the collection will typically remain on your credit reports (though it will say “Paid Collection” in the account information).

Recommended: How Long Does It Take to Build Credit?

Medical Debt on Your Credit Report

Medical debt is not included in your credit reports, provided it stays with your health-care provider. If you have a medical bill that is several months overdue, the provider may sell it to a collections agency. But even if that happens, it won’t show up on your credit reports right away.

That’s because the three major credit bureaus (Equifax®, Experian®, and TransUnion®) give consumers a one-year grace period to clear up any medical debt that’s gone to collections before listing the account in your credit reports. This waiting period allows time for bills to make their way through the insurance approval and payment process. It also gives consumers a chance to report any billing errors to their insurance company and/or health care provider, perhaps negotiate a smaller bill amount, or get on a payment plan.

More good news: Medical debts under $500 will not appear on your credit reports. In addition, medical debts in collections that have been paid off are removed from your credit reports — they won’t stick around for seven years.

Managing and Preventing Collections Accounts

One of the best ways to protect your credit reports (and credit scores) is to avoid having a debt ever go to collections. Here are some tips that can help.

•  Stay organized: Keep track of payment due dates by setting reminders on your phone or switching to autopay. A budgeting and spending app can help ensure you aren’t short on cash when it comes time to make your payments.

•  Communicate with creditors: If you’re having trouble paying some of your bills on time, it’s a good idea to contact your creditors or service providers. They may be to offer a more manageable payment plan or offer temporary relief.

•  Monitor your credit report: It’s wise to regularly check your credit reports for any inaccuracies or any accounts labeled “delinquent” (a sign they may be headed to collections).

•   Establish an emergency fun: Having savings to cover unexpected expenses, like medical bills, can help prevent debt from going to collections.

If you already have an account in collections, you’ll want to make sure the debt and collection agency are legitimate and, if so, create a plan to resolve the unpaid balance. Generally, it’s a good idea to pay off the debt in collections, either as a lump sum or payment plan, so your debt can be marked “paid” and the collection agency stops contacting you.

How Collections Impact Your Credit Report and Credit Score

Collections fall under payment history, which is the biggest factor in your FICO® Score calculation (representing about 35% of your score). People with collections on their credit reports tend to have lower credit scores than those who have no collections.

How much damage a collection account will do to your credit will depend on the size of the debt, how recent the collection is, and the overall strength of your credit profile. A collection account tells future lenders that you’ve had trouble managing debt in the past, making them less likely to offer favorable loan terms or approve you for new credit.

In general, the more recent a collection, the bigger the impact. However, over time, the damage to your credit score diminishes, especially if you maintain good credit habits, like making on-time payments and keeping credit card balances low. Also keep in mind that paid collection accounts may not affect your credit scores in the same way that unpaid collection accounts can.

Recommended: How to Check Your Credit Score Without Paying

How to Find Out if You Have Accounts in Collections

There are a few different ways you may find out that you have an account in collections.

•   A debt collector must contact you about your debt before it sends information about the debt to a credit reporting company. If you receive a “validation notice” about a debt from a debt collector, it means they have satisfied their requirement to contact you and can begin to report the debt to credit reporting companies.

•   If you aren’t sure about the status of an unpaid bill, you may want to check your credit reports. You’re entitled to a free credit report from each of the three major credit bureaus once a week through AnnualCreditReport.com. On your report, collections accounts will appear as a separate section, listing the original creditor, the collection agency, and the outstanding balance.

•   You also can contact the original creditor to learn the status of your account. Just remember that if your debt has been sold, the original creditor is no longer able to collect your debt. You’ll have to deal with the debt buyer.

•   Some credit monitoring services will automatically alert you if a new collection account is added to your report, allowing you to address the issue as soon as possible.

How Do You Remove Collections From Your Credit Report?

You generally can’t remove a collection account from your credit report unless the account is listed in error or as a result of fraud.

If you see an error on your credit report, such as an account you don’t recognize or a paid account that shows as unpaid, you can file a dispute using the credit bureau’s online process by phone or by mail. The credit bureau is required to respond within 30 days.

If you think the error is on the part of the debt collector, you can contact the collection agency using the phone number listed on your credit report. They can confirm if the debt belongs to you and provide other relevant information about the account.

If the entry is legitimate, one way you might be able to get it removed from your credit reports is to write a “goodwill letter” to the creditor that explains your situation and why you would like the debt removed. It may not work, but there’s no downside in trying.

Recommended: Why Did My Cresit Score Drop After a Dispute?

When Will Credit Bureaus Remove Medical Collections?

In 2022, the three major credit bureaus agreed to remove medical collections from consumers’ credit reports once they were paid. They also decided to exclude unpaid medical collections under $500, and to extend the time before medical bills in collections can appear on credit reports from 180 days to one year. These changes provide some relief for consumers facing medical debt, giving more time to settle the bills before they affect credit.

Medical collections that meet these criteria should have automatically come off your reports, but if they are still listed on any of your credit reports, you can file a dispute with the credit bureau.

Will Making Payments Change the Timeline?

Making payments on a collection account does not restart the seven-year timeline for when the collection falls off your credit report. The original delinquency date remains the same, even if you make partial payments. However, paying off or settling a collection account can have positive effects. While it won’t immediately remove the collection from your credit report, a paid collection may be viewed more favorably by lenders than an unpaid one. It also stops the collection agency from continuing to pursue you for the debt.

But there is another timeline to keep in mind — the statute of limitations on the debt. The statute limits how long a creditor or debt collector can take legal action against you in pursuit of repayment. The time frame depends on the type of debt and where you live but is typically three to six years. Once the statute of limitations expires, the debt becomes “time-barred,” meaning that debt is no longer legally enforceable.

If you make a payment on a time-barred debt, it can restart the statute of limitations. This means the creditor can take you to court and, potentially, sue you for the full amount owed plus interest and fees.

The Takeaway

Collections can have a significant impact on your credit score, but they don’t last forever. Typically, collections remain on your credit report for seven years from the date of delinquency, but recent changes have provided some relief for medical debt.

The best way to protect your credit is to manage your accounts carefully and be sure to pay all of your bills in full and on time. If you do have accounts in collections, taking steps to resolve them — whether through payment, negotiation, or disputing inaccuracies — can help improve your financial health over time.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Should I pay off a three-year old collection?

Paying off a three-year-old collection can be beneficial, especially if you’re looking to build your credit or apply for new credit. While paying it off won’t remove it from your credit report, it can stop further damage and prevent additional actions like lawsuits or wage garnishments. Paid collections also tend to be viewed more favorably by lenders than unpaid ones. In fact, some credit scoring models don’t include paid collection accounts when calculating credit scores.

Can you have a 700 credit score with collections?

Yes, but it’s not common. Factors such as the size of the debt in collection, how old it is, and the overall makeup of your credit profile play significant roles in determining your score. If the collection is small, paid off, or several years old, and the rest of your credit history is strong, you may be able to achieve a 700 score. Larger or recent collections, on the other hand, typically have a more negative impact on your credit.

What happens if you never pay collections?

If you never pay collections, the debt will remain on your credit report as an unpaid collection account for up to seven years, significantly harming your credit score. Unpaid collections can also lead to lawsuits, judgments, and wage garnishments. On a positive note, many states have statute of limitations in place to prevent creditors and debt collectors from suing you to collect on an older debt.

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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Seeing your credit score go down after paying off debt may seem illogical, but there are likely valid reasons for the drop, including a potential change in your credit mix or in the age of your accounts. Although a lower score may feel like a setback, rest assured the dip is usually temporary.

Let’s take a closer look at some reasons why your credit score dropped after paying off debt and what you can do to help turn things around.

Why Would My Credit Score Drop After Paying Off Debt?

Credit scores are calculated based on a variety of factors. For instance, if you’ve finally paid off a car loan and all of your other debts are from credit cards, your score might drop because you no longer have a diverse credit mix. Creditors and lenders like to see someone who’s been able to manage an array of accounts over time.

But a varied credit mix is only one of the components that make up your credit score. Read on to learn what affects your credit score and how much each factor is impacted when you pay off debt:

Credit Score Factors

According to FICO™, the credit scoring company used by 90% of the top lenders, your credit score is based on data from five different categories: payment history, credit utilization, length of credit history, credit mix, and new credit applications.

Let’s take a closer look at each one.

Payment History

Showing lenders you can consistently make on-time payments is the top factor in determining your credit score. In fact, under the FICO model, your payment history accounts for the biggest percentage of your credit score (35%).

A late or missing payment can lower your credit score anywhere from 17 to 83 points, depending on where you fall in the credit score range. Generally speaking, the higher your credit score, the greater the impact of a late payment.

Even if you’ve paid off a debt, a delinquent payment can remain on your credit report for up to seven years and negatively affect your credit score.

Credit Utilization

Credit utilization accounts for 30% of your credit score. Your credit utilization is the amount of money you owe versus the amount of credit available to you, and this configuration is called your utilization rate or credit utilization ratio.

Most lenders prefer you to keep your credit utilization ratio below 30%.

Paying off a debt typically improves your credit score, but there are instances when it could have the opposite effect. For example, if you pay off a credit card and then close the account, you may see your score fall. That’s because you now have a lower amount of available credit, which could raise your credit utilization ratio.

Length of Your Credit History

The average age of your credit accounts make up 15% of your credit score. Keeping accounts open — and establishing a track record of timely payments — can help improve your credit score. So if you’re paying off a credit card or other type of revolving debt, consider leaving the account open afterward.

Installment loans, like a personal loan, work a bit differently. When you pay off an installment loan, the account is considered closed. And if you’ve had that account for a long time, your average account age — and your credit score — could drop.

Credit Mix

As previously noted, having a variety of different types of credit, or a credit mix, counts toward your credit score. In fact, it makes up 10% of your FICO score.

Having a combination of revolving credit and installment credit can help boost your credit. But paying off a home, car, or personal loan could change your credit mix, which might cause your score to dip.

New Credit Card Applications

Applying for new credit determines 10% of your credit score. So if, for instance, you decide to open a few new credit cards to help pay off another debt, your score could take a hit. That’s because each time you apply, a hard credit check, or inquiry, is made.

When a lender does a hard credit check, they will pull your credit report from one of the three main credit bureaus: TransUnion, Equifax, and Experian. A hard inquiry can decrease your score by as much as 10 points, so if you’re trying to sign up for multiple credit cards at once, this can have a cascading effect on your score.

How to Pay Off Debt and Help Your Credit Score

There’s no hard and fast rule on how to pay off your debt and build up credit. But it’s always a good idea to make timely, regular payments on balances. Try not to use all your available credit (keep it under 30%). And if you’re overextended, consider reevaluating your purchasing habits with a spending app or other tool.

How Do I Keep My Credit Score From Dropping?

There are other strategies you can take to help prevent your credit score from falling. Here are five to consider:

•   Limit applications for new credit, especially if you’re applying for several at one time.

•   Try to avoid closing out a credit card account, even if you’ve paid off the balance.

•   Review your credit report at least once a year, and dispute any errors. You can get your report for free at AnnualCreditReport.com.

Recommended: Why Did My Credit Score Drop After a Dispute?

How Long Does It Take for Your Credit Score to Improve After Paying Off Debt?

After you make a payment, most large credit issuers and lenders update your account information with the credit bureaus within 30 to 45 days. Smaller credit entities may only report a paid off debt once a quarter, so in that case, it could take several months for your credit score to update.

Ways to Increase Your Credit Score After Paying Off a Loan

In addition to making timely payments, there are several ways to build credit and boost your score.

One tactic is to take the money you were using for the now paid off loan and apply it to one or more of your credit card payments. For example, if you were only making minimum payments, try paying double the minimum each month. If this isn’t possible, even kicking in an extra $10, $20, or $30 can make a difference. Paying double the minimum doesn’t just bring down your balance. It can also lower your credit utilization ratio by increasing the available credit on that card.

Another trick: Contact your card issuer and ask for an increased credit limit so your credit utilization on that card is lower. Or consider becoming an authorized user on a loved one’s credit card account.

Recommended: How Long Does It Take to Build Credit?

How to Get Credit Score Monitoring

There are various ways to check your credit score for free.

•   Contact your credit card issuer. Most provide cardholders with complimentary access to their credit score.

•  Inquire with your bank. Many financial institutions offer customers either their FICO score or VantageScore for free.

•  Sign up with Experian. You can monitor your credit score for free through Experian, one of the three major credit bureaus.

•  Download a free money tracking app, which provides you with your score and can alert you to any changes.

The Takeaway

Zeroing out the balance on a loan or credit card can be a big stress reliever, though it may not always provide the credit score boost you were hoping for. Changes in credit mix or account age are among the reasons for a drop.

The good news is, there are ways to help protect your credit score: Pay your bills on time, keep credit card accounts open even after you’ve paid off the balance, and explore credit score monitoring services that alert you to any changes in your score.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How long does it take to rebuild credit after paying off debt?

The amount of time it takes to rebuild credit is different for everyone. For some people, it may only take three to six months, while for others it could take years, especially if credit card bills have high balances or are maxed out. Certain factors such as missed payments, which can remain on your credit report for up to seven years, or a declared bankruptcy (which can linger for up to 10 years) can keep your credit score from increasing.

Why does my credit score go down after paying off debt?

Eliminating one debt means you’ve changed your overall credit “portfolio,” which can impact some factors that go into determining your credit score. For instance, if you’ve paid off a car loan and all of your other debts are credit cards, you’ve affected the diversity of your credit mix. As a result, you may see a slight drop in your credit score.

How much will my credit score increase after paying off debt?

There’s no exact number of points your credit score will increase from paying off a debt. However, it’s possible credit scores can increase anywhere between 10 to 50 points after eliminating a credit card debt.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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