Does paying off a loan lower your credit score? What Equifax says
Quick summary
Yes, it can, for a short time and in some cases. Equifax Canada says paying off debt may cause a temporary dip in your score in some circumstances, but it is generally good for your finances. The dip usually comes from losing your only installment loan, closing an old card or having less available credit. To see what a score is built from, read how credit scores work in Canada.
Checked November 10, 2026. Main source: Equifax Canada: Why your credit score may drop after paying off debt (no date shown, last confirmed November 10, 2026). See all 1 source.
Key facts
- Credit mix
- About 10% of a score, per Equifax
- Source: Equifax Canada page, no date
- Age of accounts
- About 15% of a score, per Equifax
- Source: Equifax Canada page, no date
- Utilization
- About 30% of a score, per Equifax
- Source: Equifax Canada page, no date
- Effect
- A temporary dip in some cases
- Source: Equifax Canada page, no date
The three reasons a score can dip
- Credit mix: if you pay off your only installment loan, like a car loan or a mortgage, your mix of credit gets less varied. Equifax says credit mix is about 10% of your score.
- Age of accounts: if you close a paid-off card, especially one of your oldest, the average age of your accounts can fall. Equifax says this is about 15% of your score.
- Utilization: if you close a card, your total available credit shrinks. If you still carry balances on other cards, your utilization can go up. Equifax says this is about 30% of your score.
Source: Equifax Canada: Why your credit score may drop after paying off debt (no date shown, last confirmed November 10, 2026).
An example with made-up numbers
You have two cards with $5,000 limits and a $2,000 balance on one. Your utilization is $2,000 out of $10,000, which is 20%. You pay off and close the empty card. Now you have $5,000 of limit and the same $2,000 balance, so utilization is 40%. Nothing about how you pay changed, but the ratio doubled. That is our arithmetic to show the idea. The real effect on a score is not given by the Equifax page.
What Equifax suggests
- Keep one or two cards open with a zero balance.
- Make a small purchase and pay it off each month.
- Avoid closing old accounts.
- Equifax also warns that not using credit at all can eventually leave your file thin or unscorable.
Source: Equifax Canada: Why your credit score may drop after paying off debt (no date shown, last confirmed November 10, 2026).
Should you still pay off the loan?
Equifax says paying off debt is generally good for your financial health. A small dip in a score does not cost you money by itself. Interest on a loan does. If you pay off a loan early, you stop paying interest. Whether to do it depends on the rate you pay, what else you could do with the money and whether your loan has a fee for paying early. Check your contract.
If you are about to apply for a mortgage or another loan within a few months, you may want to ask the lender whether the timing matters, since a lender reads your report and your score.
Related guides
Questions people ask
Does paying off a loan lower your credit score?
It can, for a short time. Equifax Canada says paying off debt may cause a temporary dip in some circumstances, such as when you lose your only installment loan.
Why did my score drop after I paid off my loan?
Equifax names three reasons: a less varied credit mix, a lower average age of accounts if you closed an old account, and higher utilization if you closed a card and still carry balances.
Is it bad to pay off a loan early?
Equifax says paying off debt is generally good for your finances. You stop paying interest. Check your contract for any early payoff fee.
Should I close a card after paying it off?
Equifax suggests keeping one or two cards open with a zero balance and avoiding closing old accounts.
How long does the dip last?
The Equifax page says temporary and gives no length of time.