Paying off an installment loan early will most likely not hurt your score, but leaving it open and managing it through the term of the loan shows that you can manage and maintain the account responsibly over a period of time — which is very good for your credit score.
Does paying off a loan early hurt credit?
Even if you pay off the balance, the account stays open. And while paying off an installment loan early won’t hurt your credit, keeping it open for the loan’s full term and making all the payments on time is actually viewed positively by the scoring models and can help you credit score.
How Much Does paying off a loan increase credit score?
The length of your credit history can decrease if you pay off an account that then closes, such as with a loan, which can have a slight negative impact your score. The amount of credit being used will get a huge positive bump when you pay off your debt.
Why did my credit score drop when I paid off a loan?
Credit utilization is one reason your credit score could drop a little after you pay off your debt. Paying off an installment loan, like a car loan or student loan, can help your finances but might ding your score. That’s because it typically results in fewer accounts.
Photo in the article by “Mount Pleasant Granary”