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Agreeing to cosign a loan for someone is a generous thing to do, and risky. Such a noble deed will show up on your credit report, but the impact won’t always be positive. On the one hand, your credit score might improve if the primary borrower executes timely payments. On the other hand, if the primary borrower reneges on their financial responsibility, your credit score could take a huge hit.

But there’s more to it than that, so let’s examine what you should consider before cosigning a loan, whether for a friend, family member, or business associate.

What Does It Mean to Cosign a Loan for Someone?

Cosigning a loan means that you agree to be responsible for the debt if the borrower does not or cannot repay the loan. You are not the primary borrower, but you could become the primary payer. You can cosign any type of loan — a personal loan, auto loan, mortgage, home improvement loan, or student loan. You can also cosign a lease or make someone an authorized user of your own credit card, which may have a similar effect on your own financial situation.

Why Would a Loan Need a Cosigner?

Typically, a loan requires a cosigner if the primary borrower cannot qualify to borrow the funds on their own. The reason could be that their credit score is too low, they haven’t built up a credit history, or they don’t have a sufficient or steady income. If any of these apply, a lender will consider them to be at high risk of default and choose not to qualify them for a loan.

How Does Being a Cosigner Affect My Credit Score?

Although you are not the primary borrower when you cosign a loan, your credit score could be impacted. Depending on how good a job the primary borrower does at tracking their money, budgeting, and making payments, cosigning a loan could either boost your score or damage it. Therefore, it’s important to understand how cosigning will affect it.

Risks of Cosigning a Loan

There are serious financial and personal consequences to cosigning on a loan. The biggest risk: Cosigners assume legal responsibility for the debt. If the primary borrower defaults, the cosigner may have to pay the full amount of what’s owed.

If you cosign a loan, it will impact your debt-to-income (DTI) ratio, which is an important factor lenders consider if you apply for a loan. Your ratio may go up if you cosign a loan, making you appear more risky as a borrower, and limiting your ability to obtain credit in the future.
Cosigning may also impact your credit utilization ratio (how much of an allowed line of credit you have used), which is an important factor in computing your credit score.

But there are other potential impacts:

•  If a lender conducts a hard inquiry (a type of credit check) on your credit report as part of the loan application process, this may cause a temporary drop in your score, particularly if you apply for other loans or credit cards within a short period.

•  If a payment is over 30 days past due, the creditor might report the late payment to the credit bureaus, lowering your credit score.

•  If a cosigned vehicle is repossessed, your credit may suffer even if you do not use the vehicle.

•  If the account is sent to collections, your credit score will drop.
The relationship you have with the primary borrower also could be damaged if they fail to meet their end of the deal.

The relationship you have with the primary borrower also could be damaged if they fail to meet their end of the deal.

When Cosigning May Improve Your Credit

Your payment history, credit utilization ratio, and credit mix are three factors used to calculate your credit score, and these could all be impacted when you cosign a loan. Cosigning can positively affect your credit score when a primary borrower makes timely payments and pays back the loan according to the terms.

•   On-time payments by the primary borrower can have a positive impact on your credit score because they add to your payment history.

•   If the loan is paid off according to the terms, this can show that you use credit responsibly.

•   The new debt may add to your credit mix. Successfully managing a mix of debt, such as credit cards and installment loans, can boost your credit score. Maybe you don’t have an installment loan. If you cosign on a well-managed installment loan, such as an auto loan, it indicates to lenders that you are a responsible borrower.

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

Pros and Cons of Cosigning a Loan

The pros and cons of cosigning a loan depend on the situation.

When Should I Become a Cosigner on a Loan?

The decision to become a cosigner on a loan is a personal one, and it depends on the circumstances of everyone involved. You might want to cosign a loan to help someone achieve their financial goals. Perhaps your son or daughter needs you to cosign on a loan for a car, or someone you want to help needs you to cosign on a personal loan to start a business. It’s up to you to understand the risks involved and to assess the borrower’s ability to honor the payments.

Does being a cosigner show up on your credit report? Yes. So it is not a decision to be taken lightly. Before you agree to cosign on someone else’s loan, it would be wise to check your own credit score to make sure it is healthy. If you decide to cosign, implementing a free credit score monitoring app can help you track the impact on your score.

What Are the Responsibilities of a Cosigner?

The cosigner on a loan is legally bound to pay the debt if the primary borrower defaults. The cosigner is just as responsible for the loan as the primary borrower, even though they may not directly benefit from the loan. This is the case even if the primary borrower files for bankruptcy. If you used assets as collateral to help the primary borrower secure the loan, the lender can sell them to recoup the debt.

It is the cosigner’s responsibility to discuss with the primary borrower their ability to manage their budgeting and spending, pay back the loan in a timely manner, and plan what to do if they find themselves unable to meet their financial obligations.

The Difference Between an Authorized User and a Cosigner

Authorized user is a designation used for credit cards. Cosigners aren’t typically accepted for credit cards. Instead, a person can be designated as an authorized user of another person’s credit card. The credit card owner is the person responsible for the debt, and they give permission for the authorized user to also receive a card and use the account.

Here are the main differences between a cosigner and a credit card-authorized user.

Cosigner	Authorized User
Typically used for loans, such as personal loans, auto loans, mortgages	Typically used for credit cards
Only the primary borrower accesses the funds	Both the primary credit card owner and the authorized user access the funds

What to Consider Before Cosigning a Loan

You will have your own reasons for cosigning a loan. However, here are some things you might want to consider before you take on the risk of another person’s debt.

The Consequences for You

Consider the consequences for your credit score and ability to borrow in the future. If your debt-to-income ratio goes up, your ability to get financing may be reduced.

If you have to assume the payments, creditors can sue you and garnish your wages or bank accounts to collect the outstanding debt. Your credit score updates periodically but the negative impact can persist for up to seven years.

Your Relationship with the Primary Borrower

If the primary borrower benefiting from your generosity manages the payments responsibly, it could strengthen your relationship with that person, However, the opposite could happen if they do not manage the debt well.

How to Monitor the Loan

If you do go ahead and cosign the loan, it’s a good idea to monitor whether the primary borrow is making the payments on time. You might be able to intervene if a problem occurs before the debt is sent to a collection agency. The Federal Trade Commission (FTC) recommends asking the lender or creditor to notify you if the borrower falls behind on their debt. You’ll also want to add the loan to your own personal debt summary so you remember to keep track of it as time passes.

Recommended: How to Check Your Credit Score Without Paying

The Takeaway

Cosigning on a loan can be a way to help another person access credit. However, cosigning a loan can also ruin a relationship and your finances if the primary borrower fails to hold up their end of the bargain.

Before cosigning on a loan, understand what the consequences could be for your credit standing, financial situation, and your relationship. If you decide to go ahead, be clear about the expectations and get an agreement in writing. An agreement won’t absolve you of the responsibility to pay the debt, but it might help in getting the primary borrower to pay you back at a later date when they may be in a better financial situation.

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

Will my credit score go up if I have a cosigner?

Your credit score could go up if you have a cosigner, because if you are approved for a loan with a cosigner and you make timely payments, it will add positively to your credit history, which will also favorably impact your credit score. Having that cosigned loan could also improve your credit mix, another plus where your credit score is concerned.

Is cosigning bad for your credit?

It can be. If the primary borrower does not make payments on time or if they default on the loan, it will negatively affect your credit. It could also be bad for your credit if your credit utilization ratio increases. However, cosigning for a loan could also be good for your credit if payments are made on time and/or your credit mix improves.

Who gets the credit on a cosigned loan?

Both the primary borrower and cosigner are impacted by the cosigned loan. A cosigned loan typically appears on both credit reports, and the cosigner is responsible for paying back the loan if the primary borrower fails to do so.

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Photo Credit: iStock/flzkes
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.

SORL-Q324-026

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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.

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

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.

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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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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.

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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.

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