Does paying off a car loan improve my credit score?
I'm due to pay off my car loan in two months. How will this impact my credit score?
Great job on getting to the end of your car loan. While paying off your car loan may seem like something that will increase your creditworthiness, your score may temporarily decline after you pay off your loan.
The reason that your credit score drops is because your credit report doesn’t use completed loans as part of its score rating. Instead, your car loan being closed indicates one less line of credit open on your credit report.
This results in a lack of credit mix, or the amount of installment and revolving credit you possess. Your credit score is more likely to drop if you have fewer other lines of credit open.
However, you shouldn’t stress if your credit score drops. It should return to its previous number within a few months to a year.
Since you paid off your car loan, you’re no longer required to hold the amount of coverage your lender requires. Whether you choose to stay with full-coverage or switch to liability-only, download the Jerry app to compare quotes from up to 50 top insurers for free.
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