Your credit score is made of many variables. Debt repayment can lower your credit score if it alters your credit mix, credit usage, or average account age.

Additional Reading: 30 Things That Mess Up Your Credit Score

Here are the top impacts of repaying debt on your credit score, under different scenarios:

No more instalment loan or revolving debts: Creditors want to see that you can handle different forms of debt. Furthermore, if paying off a specific debt makes your credit report less diverse, it can have a negative impact on your credit score. If you pay off an auto loan and are just left with credit cards, the credit mix suffers.

Instalment loans that have been paid off will stay on your credit report: Positive accounts, or loans that were paid on time and in good faith while they were active, stay on the credit report for up to ten years from the date of last operation. Instalment loans with late payments, on the other hand, can have an ongoing negative effect on your credit score even after you've paid them off. However, after seven years, these negative marks will be deleted from your credit history.

Credit utilization has increased overall: Maintaining a low average usage of your available credit (i.e., not maxing out any of your credit cards or lines of credit) results in a higher credit score. However, when you pay off a revolving line of credit or credit card in full and close the account or let the account go inactive (which leads to the account being closed), you reduce the total amount of credit you have available, thereby raising the remaining usage rate.

The average age of your accounts has been reduced: The longer you've had your accounts open and in good standing, the better. Even if you don't use it, having a 20-year-old account on your report is a positive sign; closing that account and being left with accounts no more than five years old greatly decreases the average age of your accounts.

Additional Reading: Side Effects Of A Bad Credit Score

Key Takeaway

A loan, once taken, is going to have a long time effect on your credit report. Certain aspects are beyond your control. So all you need to do is make timely repayments so that the negative impact is neutralized.