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Does paying off a car loan raise your credit score?
I’m so close to being done with my car loan. Does paying it off early raise my credit score?
Matthew Macgugan · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Surprisingly, paying off your
car loan
can actually cause your credit score to temporarily drop a few points.Basically, an auto loan is a long-established account that you have (hopefully) kept in good standing—which is a positive sign for future lenders and the FICO credit score formula. But once you close out the loan account, the average age of your credit history and your mix of use may drop.
In other words, according to the FICO credit score formula, a loan that’s almost paid off is better for your credit than one that’s completely paid off. That being said, the hit to your credit score is likely to be mild, and it shouldn’t impact your ability to qualify for loans in the future.
Despite the slight drop in credit, you will ultimately save money on a car payment when you pay off your loan. You can also save money on your
car insurance
, since you’ll have the option to change your coverage from the lender’s terms.View full answer
- Gregory R.
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