Personal loan closed but credit score not improving? Experts explain why

Clearing a pending personal loan can bring a borrower much-needed financial relief. However, repaying the loan does not always lead to an immediate improvement in the credit score.

Closing a loan reduces overall debt and eases the stress of owing money, but its impact on a credit profile depends on several factors, including how quickly credit bureaus update their records, repayment history and overall credit utilisation. Understanding these basics can help borrowers manage their credit profiles better and build a stronger financial record over time.

Why your credit score may take time to improve

Loan closures are not reflected in credit reports instantly. Lenders generally share account updates with credit bureaus periodically, so borrowers may have to wait several weeks before the loan is marked as ‘closed’.

Raj P. Narayanam, Founder & Executive Chairman, Zaggle, explained: “Closing a personal loan is a financial milestone, but the score does not respond instantly. Lenders report to the bureaus on a monthly cycle, so the closure can take 30 to 45 days to be reflected. Once the loan closes, you also lose an active account that was contributing to your credit mix. The good news is that a closed loan with a clean repayment record stays on your report and keeps supporting your history.”

He further stated, "To keep the score moving upward, maintain an active credit card with regular usage and timely payments, such as zagg.money.” It is important to note that zagg.money is Zaggle's consumer payments and credit card platform.

What borrowers should do after closing a loan?

Shakti Shekhawat, Business Head at BharatLoan, touched on what a borrower should do after closing a loan. He stated that “Closing a personal loan does not guarantee an immediate improvement in your credit score, as credit bureaus may take time to update the loan status in their records. A borrower’s credit profile also depends on repayment history, outstanding balances and overall credit utilisation. Consistently meeting payment obligations and maintaining a healthy credit mix can help strengthen creditworthiness over time.”

Therefore, borrowers should check their current credit score and credit report after the lender's reporting cycle is complete to ensure that the loan is marked as ‘closed’ or ‘settled’ in their case, and to confirm that no pending dues remain on the outstanding amount.

Staying vigilant is the key to proper financial management. It is also important to note that if the status is marked incorrectly, the borrower should promptly contact the lending institution and dispute it with the relevant credit bureau to resolve the issue amicably.

Closing a personal loan is a positive step towards becoming debt-free, but score updates can take time, and a score reflects overall financial behaviour rather than a single transaction. Paying all dues on time, keeping the credit utilisation ratio under control and checking credit reports regularly for errors are simple steps that help maintain a healthy credit profile.