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?

Answer
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.
Eric Schad
Answered on Nov 18, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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