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While it’s a great thing to pay off your student loans, especially if they’re the only installment loans you have to deal with, you may be wondering if paying them off completely is going to affect your credit score. After all, once your student loans are paid off, you won’t have any more loans to worry about, which could mean that your credit score will be negatively impacted, right? Not exactly, actually.

What Goes Into Your Credit Score

Your credit score basically takes into account five different factors:

  1. Your payment history and how often you paid on time.
  2. The amount of available credit you’re currently using.
  3. How many times you’ve applied for new credit recently.
  4. The various types of credit you have.
  5. The duration of your credit history.

When it comes to your situation, the most important factor for you is that you’ve paid your student loans (hopefully) on time. Your effort to pay back your loan in a timely manner can actually help your credit score, not hurt it. When it comes to your FICO score, one of the three credit bureaus you need to think about, paying your credit back on time is the most important factor.

Additionally, the duration of your credit history will have a positive impact on your credit score. Since you’ve probably had your student loans for at least a few years, this will only help you, even if it was your only loan through all that time.

What Happens After You Pay

Since the types of credit you have play a role in your credit score, you may be wondering what will happen once your installment loan is no longer there. Even though you will have paid your loan off completely, the information about your now-paid student loan will remain on your credit report for as long as ten years – it’s not going to come off your credit report the moment you make that last payment. So long as you were financially responsible with that loan, this is a good thing for your credit rating. Creditors will see that you had a loan for an extended period of time and that you paid it off on time and without delinquencies.

Preparing to Go Down a Few Points

Even though paying your loan off is, overall, a positive thing, and even though it won’t severely impact your score, it is possible that your score will drop a few points. Hopefully, your credit score is high enough at this point that that won’t make much of a difference. However, if you want to give your credit score the best chances for being as high as possible, consider getting another installment loan. The best way to max out the types of credit factor is to have one credit card and one installment loan open.

Spending Your Leftover Cash

Now that you won’t be making monthly payments toward your student loan, what should you do with all that extra cash! Before you spend it on something big or go on a shopping spree, determine if there’s a way to use it wisely in an effort to increase your credit score even more. Since you were able to survive for so long without it while you were paying your loan, this shouldn’t be too difficult.

It’s tempting to put all that extra money into a savings account, but although you do want to maintain a savings account on your own, you may be better off paying down other types of debt you have first. For example, consider paying off one of your credit cards. It’s better to pay off the balance in full each month, on time, rather than to carry a balance over from month to month. Using your credit in this way will build your credit and increase your score.

Alternatively, you can open up a new installment loan and continue making the same payments toward it that you were making toward your student loan. If you do need a big item, like a car, for example, this is a great way to get it while continuing to build your credit. Since you already are used to making payments each month, it won’t be hard to keep up with the new loan.