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Can paying off a car loan early make my credit better?

I won a bit of money at the blackjack table, and I'm thinking of paying my car loan off early. However, I'm worried about my credit score. Will paying off my car loan make my credit better or worse?

avatar
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Although this seems counterintuitive, paying off your
car loan
 early doesn’t necessarily help your credit score. Credit bureaus like to see that you have debt that you make regular payments on, as well as a credit mix of both:
  • Revolving loans (credit cards)
  • Installment loans (cars and mortgage)
When you pay off your car loan early, you:
  • Cut your credit mix
  • Lower the average age of your credit
Both can have a negative impact on your credit. So if you’re worried about your credit score, just think of the interest you pay on the car loan as an expense for keeping your credit score higher.
As long as you keep the loan, you must have full coverage car insurance. But you can offset the interest from your car loan by shopping around for a bargain car insurance policy. Hop onto the
Jerry
 app to compare dozens of quotes from reputable car insurers and discover some added savings.
MORE:
How to get out of an upside-down car loan
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