Can it hurt my credit if I pay off my car loan early?
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I currently owe around 10K on my car loan. My interest rate is much higher than what I get on my savings account. If I pay off the loan now with my savings, it can save me around $1,200 on interest payments. I want to go ahead with this plan, but before I do I’d like to know in advance if it can hurt my credit score in any way?
I’d go ahead and pay it off
Paying off that loan makes perfect sense, and in general will never have a negative effect on your credit. It may have a negligible negative effect on your credit score, but it’s not something you should worry about. Sometimes it’s smarter to think with your pocket and not to worry about a few credit score points.
Installment loans build credit by making payments over time. You need to pay on a car loan for 12 to 18 months for it significantly affect your credit score. While paying off an installment loan early won’t hurt your credit, it won’t do anything extra for your score.
Paid accounts in good standing remain on your credit report for at least 10 years. They just don’t count as much in your score as open, active accounts. For this reason, paying off that car loan may lower your score by 10 – 15 points max. Not something to worry about’ unless you plan to take a mortgage in the next 6 month.
I’d go ahead and pay it off if I were you.
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