Will paying off my car hurt my credit?

Paying off your car loan early can hurt your credit score. Any time you close a credit account, your score will fall by a few points. So, while it's normal, if you are on the edge between two categories, waiting to pay off your car loan may be a good idea if you need to maintain your score for other big purchases.

bankrate.com - How paying off a car loan early affects your credit score - Bankrate.com

Can you lay gravel on soil?

Laying A Gravel Path On Soil: Problems And Pitfalls While the process for how to lay a gravel path on soil is fairly simple, if labour-intensive,...

Last updated Apr 30, 2022

Which is better peel and stick or synthetic underlayment?

Peel and stick Underlayment Provides a Better Barrier. Due to its non-wrinkle properties, peel and stick underlayment doesn't provide any space for...

Last updated May 30, 2022

Promotion

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money . Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate follows a strict editorial policy , so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts , who ensure everything we publish is objective, accurate and trustworthy. Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Bankrate follows a strict editorial policy , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate follows a strict editorial policy , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. In the short-term, paying off your car loan early will impact your credit score — usually by dropping it a few points. Over the long-term, it depends on quite a few factors, including your credit mix and payment history. With the right strategy, you can avoid a big hit to your credit and determine if paying off your car loan is the right choice.

Is a vinyl fence cheaper than wood?

Cost. The cost of installing a new fence is relatively affordable. Installing a vinyl fence costs less than wood, although wood as a material is...

Last updated May 31, 2018

Should I carpet a music studio?

Carpet, for instance, is not recommended. Not only does is wear out quickly and hold dirt and dust, but it absorbs only high and medium sound waves...

Last updated Jun 5, 2022

Promotion

Does paying off your car loan early hurt your credit?

Paying off your car loan early can hurt your credit score. Any time you close a credit account, your score will fall by a few points. So, while it’s normal, if you are on the edge between two categories, waiting to pay off your car loan may be a good idea if you need to maintain your score for other big purchases. However, your credit score may improve over time. If you have a high debt-to-income (DTI) ratio, paying off a big debt like a car loan could help your credit score. But putting your money toward other goals, like savings or high-interest debt, may be the better route. This is because auto loans tend to benefit your score overall. Cars may be depreciating assets, but building a history of on-time payments will go a long way to maintaining — and improving — your credit score. Paying off your car loan early should only have a small negative impact on your credit score, but ultimately, it will mean you have a more limited ability to build your score over time.

4 ways paying off your auto loan early affects your credit

Your payment history, credit utilization ratio, credit history and credit mix all factor into your credit score. When you pay off your car loan early, each can be affected — so weigh the pros and cons carefully before requesting a payoff quote from your lender.

1. Payment history

Each time you make a timely payment on your car loan, a positive payment history is added to your credit report. Over time, these payments improve your credit score. Paying off a car loan closes the account, so you will no longer be able to build a positive payment history. And while your loan remains on your credit report for up to 10 years, open accounts have a more significant effect on your credit score than closed accounts. They demonstrate how you are currently managing credit, rather than how you did in the past. Lightbulb How much does payment history impact credit? Payment history makes up for 35 percent of your FICO credit score.

2. Credit utilization

Your credit score is based on your access to credit and how much of it you use — your credit utilization. Paying your loan down over time gradually lowers your credit utilization and could give your credit score a chance to improve. Once your car loan account is paid off, it will no longer count toward your access to credit. This can drastically shift your credit utilization ratio, especially if you have other big debts, which will in turn lower your credit score. Lightbulb How much does my amount owed impact credit? The amount you owe makes up for 30 percent of your FICO credit score.

3. Length of credit history

Where should a toilet be placed in a bathroom?

Try to place the toilet facing an open wall or door, if possible, rather than a fixture. Generally, this will ensure enough clearance room in front...

Last updated May 11, 2021

What direction should a horse shed face?

Because a horse run-in shed is a three-sided structure, it is important to set your shed facing the right direction. A general rule of thumb is...

Last updated Feb 6, 2022

Can I build my own shed?

Yes, with the right plans you can build your dream shed.

Learn More »

Promotion

Paid off auto loans only remain on your credit history for up to ten years. It may seem like plenty of time, but once it is removed, your credit score will fall. Lenders want to see a lengthy credit history. If you stay on schedule and pay off your car loan according to your original terms, you will have well over ten years of credit history built up. The lengthier your credit history, the better shot you have at achieving a good or excellent credit score. If you’re working towards building or repairing your credit, it is best to keep the auto loan open to build up a positive credit history. Once you close it, the countdown starts to when it will go off your credit report. Lightbulb How much does the length of credit history impact credit? The length of credit history makes up for 15 percent of your FICO credit score.

4. Credit mix

Lenders like to see a healthy mix of revolving accounts and installment accounts. Credit cards — revolving accounts — are good for managing your credit utilization, while car loans — installment accounts — are good for building the length of your credit history. If you pay off a car loan early and it is your only installment account, your credit score could take a hit. And if you have very few accounts in general, the hit to your score could be even greater. Lightbulb How much does credit mix impact credit? Credit mix makes up for 10 percent of your FICO credit score.

When to pay your car loan off early

Despite the potential negative hit to your credit score, there are still times when paying off your car loan early is a good idea. If you can pay off your car loan without hurting other financial goals, you should. That being said, building your emergency fund or paying off high-interest debt should take precedence. Lowering a high debt-to-income ratio is also a good reason to pay off your car loan early. If your DTI is close to or over 50 percent, lenders are unlikely to approve you for more loans. Paying off your car loan will lower your DTI — and make it easier to qualify for a mortgage, new auto loan or credit card. Finally, freeing up funds to boost your nest egg, building wealth through investments or starting a business are all good reasons to pay off your auto loan early. But if your lender assesses prepayment penalties, you will need to weigh the costs to determine if it’s a smart financial move.

The bottom line

Ultimately, paying off your car loan early can both harm and help your credit score. You should expect a small drop when you first pay off your loan. But you will need to determine if it will improve your credit score over time before committing to an early payoff.

Learn more

bankrate.com - How paying off a car loan early affects your credit score - Bankrate.com

What color is best for fence?

Gray is a classic neutral that goes well with every style of home. It's a versatile color that pairs well with everything from edgy modern style...

Last updated Jan 25, 2021

Are Barndominiums safe in storms?

Most barndominiums are built with a metal structure made of steel, and this is a great plus in the face of a tornado. The structure of...

Last updated Nov 8, 2020

Promotion

Why do Americans not use concrete?

There are a few reasons why US homes are made of wood and bricks instead of concrete. The first reason is availability. The USA has vast forests to...

Last updated Jul 11, 2021

Are shed plans easy to follow?

These are! They guide you every step of the way to complete your dream shed.

Learn More »

Promotion

Do you need ventilation under shed?

Good vents in your shed are an absolute must, even if you are only using it for storage. Without a good venting system, your shed can experience...

Last updated Apr 23, 2018