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Will paying everything at one shot help your credit score more then paying it quickly but over a few months?  To me, the former suggests a lottery winning or inheritance while the latter suggests discipline. 

A related question is How does Paying credit card in full VS paying with interest will affect your credit score? but this is not a duplicate: I am asking about paying ALL debts at the same time.

Inspired by one of the answers to another related question.

Doesn’t really matter to me, as I froze my credit records about a decade ago and find not using credit quite comfortable. But I am curious, and judging by a comment, I'm not the only one.

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  • What type of account? For a credit card or any other revolving credit, the credit report won't show any difference between paying off slowly vs complete payoff and continuing to use it. – Ben Voigt Sep 2 '18 at 1:21
  • What type of account do you think would be called "ALL debts"? – WGroleau Sep 2 '18 at 2:27
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    Yes, that still doesn't tell me what kind of accounts you are asking about. Most people do not have debts of every type possible. The effect of paying off parking tickets or a tax lien in installments is likely quite different from paying a mortgage or car note on the pre-arranged schedule. – Ben Voigt Sep 2 '18 at 2:30
  • OK, if you want to narrow it down, let's say the kinds of accounts in the second link, since that's where the question came from. – WGroleau Sep 2 '18 at 2:43
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You wrote:

To me, the former suggests a lottery winning or inheritance while the latter suggests discipline.

From the point of view of credit scoring models (in the US), once all the debt is paid off, those two behaviors are equivalent. The models are designed to predict if you will pay off potential new debts, not how you will do it.

As for how your score moves, it depends mostly on where you started before the payoff. If your score was very high, it will probably drop a little, and if it was very low, it will probably climb quite a bit. In general, there are two major changes that will occur:

  1. Your revolving lines of credit (credit cards and lines of credit) will go to nearly 0% utilization (unless you have unusually low limits and continue to use the cards for day to day). If your previous utilization was high and now it's nearly 0%, this will significantly increase your credit score.
  2. When you pay off all of your term loans such as auto, home, student loan, personal loans, etc, your score goes down a little bit. This is because your credit mix is reduced.

It's important to note that the above is true regardless of whether you pay off the debt all at once or spread it out over time. If you are comparing doing it now versus spreading it out over the next 12 months, then 12 months from now, your score will be basically the same either way. I say "basically the same" because the reality is with the slow method over 12 months, your term loan accounts will build up 12 more months of history so your average age of accounts will be slightly higher, meaning your score might be a little better off as a result of the slow method. However, that difference should be minimal unless your overall credit history is short (say less than 3 years).

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It drops your credit score a bit (or maybe not...) but on the other hand, if you own a house and included your home mortgage in that "pay it all off" it almost doesn't matter at that point.

The guy who has a job and owns his house free and clear and doesn't have any other debt isn't in trouble. If he gets an 18% credit card and has to load it up one month, it would take quite some disaster indeed to be unable to immediately take out a home mortgage at 4-6% to replace it. I can't imagine even having a card with a big enough balance to get anywhere near a house's value.

On the other hand, the guy who wants to buy a house needs a different answer than mine.

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  • Paying off credit cards will unambiguously raise your credit score...quite rapidly. As long as you don't close the account. Paying off loans I'm not so sure about. – farnsy Oct 3 '18 at 4:32
  • "I can't imagine even having a card with a big enough balance to get anywhere near a house's value." Houses in low-income areas can be in the $50–75k range, even in a better area they can be $120–160k. While it's probably unusual to have a single card that high, anyone with a solid income and credit score can get several cards to a combined $100k easy enough, and I've heard churners can get over $200k. – Kevin Oct 3 '18 at 17:55
  • @Kevin: Wow. I was expecting one would be hard pressed to get more then 20k. – Joshua Oct 3 '18 at 18:19
  • Nah, 20k on a single card is a piece of cake if you have half-decent income and a reasonably good score. I stop asking for increases after that, so I'm not sure what they actually start to balk at. – Kevin Oct 3 '18 at 18:24

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