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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.

See exactly how your money comes and goes at a glance.

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.

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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.

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.

SORL-Q324-006

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Credit reports contain financial records of debts you owe and ones you’ve paid off. Positive information can remain on your credit reports indefinitely. Most negative information falls off your credit after seven years, though certain types of bankruptcy filings can remain longer.

Here’s a closer look at how financial records impact your credit reports.

How Long Do Inquiries Stay on a Credit Report?

When you apply for a loan, credit card, or line of credit the lender can perform what’s called a hard inquiry. This simply means that they pull copies of your credit reports, which they’ll use to make an approval decision.

Hard inquiries show up on a credit report and they’re included in your FICO® credit score calculations. Each new inquiry remains on your credit report for two years, according to FICO. However, they’re only considered in credit score calculations for the first 12 months.
Soft inquiries occur when you check your credit reports yourself or a company pulls your credit for the purposes of prequalifying or preapproving you for a loan. These inquiries won’t show up on a credit report, and they don’t have any impact on your credit score.

That distinction is important if you’re learning how to build credit.

Recommended: How Long Does It Take to Build Credit?

How Long Does Negative Information Remain on Your Credit Report?

Negative information on a credit report is any information that’s harmful to your credit score. What affects your credit score negatively? The list includes:

•   Late payments

•   Missed payments

•   Collection accounts

•   Charge-offs

•   Judgments

•   Foreclosures

•   Bankruptcies

Generally, negative information can stay on your credit report for up to seven years. Chapter 7 and Chapter 11 bankruptcy, however, can stick around on your credit report for 10 years.

In terms of how negative items impact your credit score, age matters, according to FICO. Newer negative items, such as collections or late payments, have a more immediate impact on your scores than negative items that are several years old. A money tracker app makes it easy to track your credit and your money in real time so you can get ahead financially.

How Long Does Positive Information Remain on Your Credit Report?

Positive information can remain on credit reports indefinitely. Credit bureaus are not required to remove this information, though they may do so at the seven-year mark. Examples of positive information that can stay on a credit report, regardless of time, include:

•   On-time payments

•   Open accounts that have a $0 balance or a low balance, relative to your credit limit

•   Closed accounts that you’ve paid in full

Positive items on a credit report are a good thing, since they help your credit scores. On-time payments and low balances on credit accounts have the biggest impact overall. Making biweekly payments or increasing your credit limits are two helpful ideas for how to lower credit utilization. Using a spending app to manage your budget and expenses can also help keep credit card balances low.

How to Remove Negative Information From Your Credit Report

Negative information that’s accurate cannot be removed from a credit report. For example, if you miss several payments on a loan but get caught up later, those late payments will stay on your credit reports until you hit the seven-year mark.

Inaccurate information, on the other hand, can be removed through the dispute process. Examples of inaccurate or incorrect items you could dispute on a credit report include:

•   On-time payments that were not properly attributed to your account

•   Credit accounts that don’t belong to you

•   Paid-in-full accounts that still show a balance on your credit reports

•   Account activity relating to fraudulent activity or identity theft

You’ll need to dispute the inaccurate information with the credit bureau that reports it. All three credit bureaus — Equifax, Experian, and TransUnion — allow you to initiate credit report disputes online. You’ll need to fill out a dispute form and provide some details about the dispute.

Once the credit bureau receives the dispute, it’s required to investigate your claim and return a decision to you promptly. If the credit bureau finds that there’s an error on your reports, it’s legally required to remove or update the information.

Your credit score updates monthly for the most part. Enrolling in credit score monitoring can make it easier to track changes, including changes to your score following a dispute.

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

Do You Still Have to Pay a Debt If It Fell Off Your Credit Report?

A debt can fall off your credit report if enough time passes. However, the amount owed doesn’t go away. Creditors and debt collectors could still attempt to get you to pay if the statute of limitations hasn’t passed.

The statute of limitations on debt allows creditors and debt collectors a set window of time in which to sue you for an unpaid balance. Each state determines how long the statute of limitations applies but in all states, its expiration doesn’t remove your legal obligation to pay what you owe.

Should you pay old debts? Ethically, yes. But if a debt falls off your credit report and the statute of limitations has expired, it would be very difficult for a creditor to force you to pay via a lawsuit.

The Takeaway

Reviewing your credit reports regularly is a good way to see what’s helping or hurting your score at any given time. If you have negative items on your credit report, you might see your score drop, but those points can come back with the passage of 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.

See exactly how your money comes and goes at a glance.

FAQ

What stays on a credit report forever?

Positive information can stay on a credit report forever, as credit bureaus are not required to remove any items that help your credit score. However, credit bureaus can choose to remove positive information after seven years.

Can credit information stay on my credit report for over 7 years?

Credit information can stay on your credit report for over seven years if it’s positive. Generally, negative information cannot stay on your report for more than seven years, unless you file for Chapter 7 or Chapter 11 bankruptcy. In that case, the bankruptcy filing could stay on your report for 10 years.

Do old accounts fall off a credit report?

Old accounts can fall off your credit report after seven years if they have negative information. Positive information from old accounts or newer ones can stay on your credit reports indefinitely.

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Photo credit: iStock/PeopleImages
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.

SORL-Q324-025

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Medical debt can be a heavy burden for individuals and families. And knowing unpaid medical bills could impact your credit can make the worry even worse.
In an effort designed to relieve some of the stress on U.S. consumers, the way medical debt is treated by credit bureaus has changed in recent years. The timeline for unpaid health-care bills appearing on your credit reports is longer than it used to be. And some of those debts may not end up affecting your credit at all.

But make no mistake: There still can be consequences if a medical bill goes unpaid for too long.

Read on for a look at when unpaid medical debt can go on your credit reports and some steps you can take to protect and improve your financial health.

Do Medical Bills Affect Your Credit?

Your medical bills shouldn’t have any effect on your credit, as long as they don’t go unpaid for too long. Most health-care providers don’t report payment activity to the credit bureaus. So unless your account goes unpaid for so long that your provider gives up and sells the debt to a debt collector, it’s unlikely your delinquent account will appear on your credit reports.

Even if the account goes to collections, it can take a year or longer to impact your credit. That’s because the three major credit bureaus (Equifax, Experian, and TransUnion) now give consumers a full 365 days to clear up a medical debt that’s gone to collections before it goes on their credit reports. This year-long grace period allows more time for medical bills to make their way through the insurance approval and payment process, and it gives consumers more time to report billing issues to their provider or the debt collector, negotiate a smaller payment, or set up a payment plan.

More good news: If the initial balance that’s gone to collections is less than $500, the debt won’t ever become part of your credit report, so it won’t affect your credit score.

How Does Medical Debt Impact Your Credit Scores?

Medical bills that you’ve paid shouldn’t appear on your credit reports at all or affect your credit scores — even if you paid the bill after it went to collections. Existing paid medical collections were erased from credit reports in 2022, and the credit bureaus no longer include this information on their reports.

If your bill in collections goes unpaid past the 365-day grace period, however, it could turn up on your credit reports, and possibly have a negative effect on your credit scores. The amount of damage can vary, depending on what scoring model you — or a potential lender — is looking at. But it’s important to note that failing to pay a bill can affect the most significant factor in determining your credit scores — your payment history. So if a medical bill with a starting balance of $500 or more lands on your credit report, you could see a serious dip in your credit scores.

How Long Do Medical Bill Collections Stay on Your Credit Report?

A typical collections account can stay on your credit reports for about seven years, whether or not you eventually pay the debt. But medical accounts are treated differently than other types of debt.

When the credit bureaus are notified that you’ve paid off a medical debt in collections, they’ll remove the account from your credit reports, and you can expect your credit scores to improve.

If you don’t pay the medical debt, however, the collections account could remain on your credit reports for a full seven years after it becomes delinquent.

Can Medical Bills Be Removed from My Credit Report?

If you believe a medical bill in collections is showing up on your credit report by mistake, you can dispute the error with the credit bureau and the debt collector who reported it. After all, it takes time to build credit, and you want to make sure your record represents you accurately.

If your debt has been in collections for less than a year, if the starting balance was less than $500, if the debt has been paid by you or your insurance company, or if you can show that the information is incorrect in some other way, you can take the necessary steps to have it removed from your credit reports.

How to Dispute a Medical Bill on Your Credit Report

To dispute a medical bill on your credit report, the Consumer Financial Protection Bureau (CFPB) recommends starting with the credit bureau that included the account. Explain in writing what you think is wrong and why — and be sure to include documentation that supports your claim. The credit bureaus can then begin an investigation. (The CFPB provides sample letters and addresses for the credit bureaus.)

You should also reach out in writing to the debt collector that furnished the information and ask that it be corrected.

Finally, if your dispute continues to go unresolved, you can submit a complaint to the CFPB.

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

How Can You Check for Medical Debt on Your Credit Reports?

There are a couple of ways you can check your credit report to see if a medical debt is showing up there.

•   If you’re paying for credit monitoring, or if your financial institution or credit card company provides a free credit score and summary each month, the information you’re looking for may be available as part of this service. You may even receive an alert if your credit score updates and there’s a significant drop.

•   You’re also entitled by federal law to receive free copies of your credit reports from the major credit bureaus at AnnualCreditReport.com.

Don’t panic if a debt collector tells you that your unpaid account will soon affect your credit scores. Remember that you have a year-long grace period to pay the debt or clear up any errors before the account will show up on your credit reports.

Does Paying Off Medical Collections Improve Your Credit?

The best way to keep medical debt from dragging down your credit scores is to make sure your bills are paid on time (by you or your health insurance company). Even if your account goes to collections, paying is still an option — and it can help push your credit scores back up.
Though the negative impact of having a collections account on your credit report diminishes with time, if the bill goes unpaid, it could sit on your record — where lenders can see it — for seven years.

Recommended: How to Build Credit

What If You Can’t Pay Your Medical Bills?

Even though it may be tempting, the worst thing you can do if you have medical debt is ignore it. Here are some options to consider if you’re wondering how to pay medical bills you can’t afford.

Ask About a Repayment Plan

Many hospitals and health-care providers will let you set up a payment schedule that allows you to pay over time. Best-case scenario, the option provided is fee- and interest-free. If you’re asked to sign up for a financing plan that will cost extra, make sure the terms work for you and that it’s still manageable within your budget.

Try Negotiating with Your Provider to Lower Your Bill

Sometimes, a health-care provider may be willing to accept a lower amount to avoid writing off the bill and selling the account to a debt buyer. (Even if the account has gone to collections, you may be able to settle for a lower payment. At that point, though, you’ll likely be negotiating with the debt collector, not the original creditor.)

See If You Qualify for Financial Assistance

Grants and other types of financial assistance are sometimes available for patients who are eligible based on their income, age, or other factors. A Google search may turn up some options, or your health-care provider or a support group may be able to pass along information.

Consider an Unsecured Personal Loan

If you can get manageable monthly payments and other terms that fit your needs, you may want to consider taking out a low-interest personal loan. Try to stay away from a loan that’s secured by your home or other assets, which could end up putting your financial well-being at greater risk if you default.

How Can You Keep Your Credit Scores Healthy Despite Challenging Medical Bills?

Small fluctuations in your credit scores are normal, but if you’re worried that an unpaid medical bill could cause a drastic drop, it’s important to keep your financial guard up. Here are some steps you can take to protect your scores:

Keep Paying Your Bills on Time

Your payment history is a big factor in determining your credit score, so do your best to stay on top of all your bills. If making timely payments is a struggle for you, you may find a spending app can help with budgeting, keeping track of billing due dates, and prioritizing payments.

Watch Your Credit Utilization

Lowering your credit card utilization ratio — the percentage of available credit that you’re using on your credit cards and other lines of credit — can help you get and keep your credit scores where you want them. If you’re relying heavily on credit to get by, and you’re close to maxing out your credit cards, you may need to reevaluate your spending and change up your budget. A money tracker app could help you stick to healthy financial habits.

Monitoring Your Credit Scores

Even if you’re on your best behavior, if an unpaid medical bill ends up on your credit report, it may take months before you see some improvement to your damaged credit scores. Credit score monitoring can help you better understand how certain actions can affect your creditworthiness.

The Takeaway

Watching your medical expenses pile up can be stressful — especially if you’re worried that your unpaid medical bills can go on your credit reports and lower your credit scores. Fortunately, the credit bureaus and credit score models have begun treating medical debt with a little more patience and consideration than other types of debt.
But an unpaid medical account still can be a problem if you let it go for too long. So it’s important to stay on top of your medical bills, along with all your other financial obligations.

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.

See exactly how your money comes and goes at a glance.

FAQ

Can unpaid medical bills affect your credit?

A medical bill will likely only affect your credit if it’s been unpaid for so long that it ends up going to collections. Even then, consumers have a full year to clear up a medical collections account before it goes on their credit reports. But if the bill goes unpaid after that grace period is up, it could affect your credit scores.

How do I remove a medical collection from my credit report?

To have a medical collection removed from your credit report, you can either pay the amount you owe or — if you think it’s in error — you can try disputing the bill with the credit bureau and the debt collector that reported it.

Is it a HIPAA violation to send medical bills to collections?

Not necessarily. The Health Insurance Portability and Accountability Act (HIPAA) has strict standards for how health-care providers and their business associates, including third-party debt collectors, handle sensitive personal health information. Debt collectors can receive and disclose information but only to the extent that it is absolutely necessary to perform their job.

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Photo credit: iStock/Pekic
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.

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

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SORL-Q324-028

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The average 401(k) balance for all ages is $134,128, according to Vanguard’s How America Saves Report 2024. However, the average 401(k) balance by age of someone in their 20s is very different from the balance of someone in their 50s and 60s. That’s why it’s helpful to know how much you should have saved in your 401(k) at different ages.

Seeing what others are saving in their 20s, 30s, 40s, 50s, and beyond can be a useful way to gauge whether you’re on track with your own retirement plans and what else you can do to maximize this critical, tax-deferred form of savings.

Average and Median 401(k) Balance by Age Group

Pinning down the average 401(k) account balance can be challenging, as only a handful of sources collect information on retirement accounts, and they each have their own methods for doing so.

Vanguard is one of the largest 401(k) providers in the U.S., with nearly 5 million participants. For this review of the average and median 401(k) balance by age, we use data from Vanguard’s How America Saves Report 2024.

It’s important to look at both the average balance amounts, as well as the median amounts. Here’s why: Because there are people who save very little, as well as those who have built up very substantial balances, the average account balance only tells part of the story. Comparing the average amount with the median amount — the number in the middle of the savings curve — provides a reality check as to how other retirement savers in your age group may be doing.

Age Group	Average 401(k) Balance	Median 401(k) Balance
Under 25	$7,351	$2,816
25-34	$37,557	$14,933
35-44	$91,281	$35,537
45-54	$168,646	$60,763
55-64	$244,750	$87,571
65+	$272,588	$88,488

Source: Vanguard’s How America Saves Report 2024

Under Age 25

•   Average 401(k) Balance: $7,351

•   Median 401(k) Balance: $2,816

•   Key Challenges for Savers: Because they are new to the workforce, this age group is likely to be making lower starting salaries than those who have been working for several years. They may not have the income to put towards a 401(k). In addition, debt often presents a big challenge for younger savers, many of whom may be paying down student loan debt, credit card debt, or both.

•   Tips for Savers: While being debt-free is a priority, it’s also crucial to establish the habit of saving now — even if you’re not saving a lot. The point is to save steadily, whether that’s by contributing to your 401(k) or an investment account, and to automate your savings.

By starting early, even small contributions have the potential to grow over time because of the power of compounding returns.

Ages 25 to 34

•   Average 401(k) Balance: $37,557

•   Median 401(k) Balance: $14,933

•   Key Challenges for Savers: At this stage, savers may still be repaying student loans, which can take a chunk of their paychecks. At the same time, they may also be making big — and expensive — life changes like getting married or starting a family.

•   Tips for Savers: You’ve got a lot of competing financial responsibilities right now, but it’s vital to make saving for your future a priority. Contribute as much as you can to your 401(k). If possible, aim to contribute at least the amount needed to get your employer’s matching contribution, which is essentially free money. And when you get a raise or bonus at work, direct those extra funds into your 401(k) as well.

Ages 35 to 44

•   Average 401(k) Balance: $91,281

•   Median 401(k) Balance: $35,537

•   Key Challenges for Savers: While your late 30s and early 40s may be a time when salaries range higher, it’s also typically a phase of life when there are many demands on your money. You might be buying a home, raising a family, or starting a business, and it could feel more important to focus on the ‘now’ rather than the future.

•   Tips for Savers: Even if you can’t save much more at this stage than you could when you were in your early 30s, you still may be able to increase your savings rate a little. Many 401(k) plans offer the opportunity to automatically increase your contributions each year. If your plan has this feature, take advantage of it. A 1% or 2% increase in savings annually can add up over time. And because the money automatically goes directly into your 401(k), you won’t miss it.

Ages 45 to 54

•   Average 401(k) Balance: $168,646

•   Median 401(k) Balance: $60,763

•   Key Challenges for Savers: These can be peak earning years for some individuals. However, at this stage of life, you may also be dealing with the expense of sending your kids to college and helping ailing parents financially.

•   Tips for Savers: The good news is, that starting at age 50, the IRS allows you to start making catch-up contributions to your 401(k). For 2024, the regular contribution limit is $23,000, but individuals ages 50 and up can make an additional $7,500 in 401(k) catch-up contributions for a total of $30,500. While money may be tight because of family obligations, this may be the perfect moment — and the perfect incentive — to renew your commitment to retirement savings because you can save so much more.

If you max out your 401(k) contributions, you may also want to consider opening an IRA. An individual retirement account is another vehicle to help you save for your future, and depending on the type of IRA you choose, there are potential tax benefits you could take advantage of now or after you retire.

Ages 55 to 64

•   Average 401(k) balance: $244,750

•   Median 401(k) balance: $87,571

•   Key Challenges for Savers: As retirement gets closer, this is the time to save even more for retirement than you have been. That said, you may still be paying off your children’s college debt and your mortgage, which can make it tougher to allocate money for your future.

•   Tips for Savers: In your early 60s, it may be tempting to consider dipping into Social Security. At age 62, you can begin claiming Social Security retirement benefits to supplement the money in your 401(k). But starting at 62 gives you a lower monthly payout for the rest of your life. Waiting until the full retirement age, which is 66 or 67 for most people, will allow you to collect a benefit that’s approximately 30% higher than what you’d get at 62. And if you can hold off until age 70 to take Social Security, that can increase your benefit as much as 32% versus taking it at 66.

Ages 65 and Older

•   Average 401(k) balance: $272,588

•   Median 401(k) balance: $88,488

•   Key Challenges for Savers: It’s critical to make sure that your savings and investments will last over the course of your retirement, however long that might be. You may be underestimating how much you’ll need. For instance, healthcare costs can rise in retirement since medical problems can become more serious as you get older.

•   Tips for Savers: Draw up a retirement budget to determine how much you might need to live on. Be sure to include healthcare, housing, and entertainment and travel. In addition, consider saving money by downsizing to a smaller, less costly home, and continue working full-time or part-time to supplement your retirement savings. And finally, keep regularly saving in retirement accounts such as a traditional or Roth IRA, if you can.

Recommended: When Can I Retire?

How Much Should I Have in My 401(k)?

The amount you should have in your 401(k) depends on a number of factors, including your age, income, financial obligations, and other investment accounts you might hold. According to Fidelity’s research on how much is needed to retire , an individual should aim to save about 15% of their income a year (including an employer match) starting at age 25.

To get a sense of how this looks at various ages, the chart below shows the average 401(k) balance by age, according to Vanguard’s research, as well as Fidelity’s rule of thumb for what your target 401(k) balance should roughly be at that age. Note that these are just guidelines, but they can give you a goal to work toward.

Age Group	Average 401(k) Balance*	Approximate Target 401(k) Balance**
Under 25	$7,351	Less than 1x your salary
25-34	$37,557	1x your salary by age 30
35-44	$91,281	2x your salary by age 35 3x your salary by age 40
45-54	$168,646	4x your salary by age 45 6x your salary by age 50
55-64	$244,750	7x your salary by 55 8x your salary by 60
65+	$272,588	10x your salary by age 67

*Source: Vanguard’s How America Saves Report 2024
**Source: Fidelity Viewpoints: How Much Do I Need to Retire?

Tips for Catching Up If You’re Behind

If your savings aren’t where they should be for your stage of life, take a breath — there are ways to catch up. These seven strategies can help you build your nest egg.

1. Automate your savings.

Automating your 401(k) contributions ensures that the money will go directly from your paycheck into your 401(k). You may also be able to have your contribution amount automatically increased every year, which can help accelerate your savings. Check with your employer to see if this is an option with your 401(k) plan.

2. Maximize 401(k) contributions.

The more you contribute to your 401(k), the more growth you can potentially see. At the very least, aim to contribute enough to qualify for the full employer matching contribution if your company offers one.

3. Make catch-up contributions if you’re eligible.

As mentioned, once you turn age 50, you can contribute even more money to your 401(k). If you can max out the regular contributions each year, making additional catch-up contributions to your 401(k) may help you grow your account balance faster.

4. Consider opening an IRA.

If you’ve maxed out all your 401(k) contributions, you could open a traditional or Roth IRA to help save even more for retirement. For 2024, those under age 50 can contribute up to $7,000 to an IRA or up to $8,000 if they’re 50 and older.

5. Make sure you have the right asset allocations.

The younger you are, the more time you have to recover from market downturns, so you may choose to be a little more aggressive with your investments. On the other hand, if you have a low risk capacity, you may opt for more conservative investments.

Either way, you want to save and invest your money wisely. Consider using a mix of investment vehicles, such as stocks, bonds, exchange-traded funds (ETFs), and mutual funds, to help diversify your portfolio. Just be aware that investing always involves some risk.

6. Pay Attention to Fees.

Fees can erode your investment returns over time and ultimately reduce the size of your nest egg. As you choose investments for your 401(k), consider the cost of different funds. Specifically, look at the expense ratio for any mutual funds or ETFs offered by the plan. This reflects the cost of owning the fund annually, expressed as a percentage. The higher this percentage, the more you’ll pay to own the fund.

7. Conduct an Annual Financial Checkup.

It can be helpful to check in with your goals periodically to see how you’re doing. For example, you might plan an annual 401(k) checkup at year’s end to review how your investments have performed, what you contributed to the plan, and how much you’ve paid in fees. This can help you make smarter investment decisions for the upcoming year.

The Takeaway

The average and median 401(k) balances and the target amounts noted above reflect some important realities for different age groups. Some people can save more, others less — and it’s crucial to understand that many factors play into those account balances. It’s not simply a matter of how much money you have, but also the choices you make.

For instance, starting early and saving regularly can help your money grow. Contributing as much as possible to your 401(k) and getting an employer match are also smart strategies to pursue, if you’re able to. And opening an IRA or an investment account are other potential ways to help you save for the future.

With forethought and planning, you can put, and keep, your retirement goals on track.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is a good 401(k) balance?

A good 401(k) balance is different for everyone and depends on their age, specific financial situation, and goals. The general rule of thumb is to have 401(k) savings that’s equivalent to your salary by age 30, three times your salary by age 40, six times your salary by age 50, 8 times your salary by age 60, and 10 times your salary by age 67.

How much do most people retire with?

According to the Federal Reserve’s most recent Survey of Consumer Finances, the average 401(k)/IRA account balance for adults ages 55 to 64 was $204,000. Keep in mind, however, that when it comes to savings, one rule of thumb, according to Fidelity, is for an individual to have 8 times their salary saved by age 60 and 10 times their salary saved by age 67.

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Photo credit: iStock/kate_sept2004

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Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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