While it may seem like paying off your loan can help your credit, car loans
are a little bit more complicated than that. Paying off a loan early can actually hurt your credit because having active accounts can help build your credit rather than closing them. Having an active account or line of credit in good standing shows lenders you’re managing your money and keeping your accounts current. In addition, if you are trying to build your credit, having a car loan can help build your credit history and credit mix.
That said, paying off your loan can help your credit if you have a longer loan term or want to lower your debt-to-income ratio (DTI). In this situation, paying off the loan can help improve your credit score since you’re reducing your debt.
If you decide to pay off your car loan early, you may see a temporary drop in your credit score. However, if you continue to keep all your other accounts in good standing and make on-time payments, you’ll see your score increase once again.
Since you are looking to improve your credit, lowering your car insurance can help pay off your loan faster. If you want to cut the cost of car insurance, but keep the coverage and find the savings, try Jerry
. The Jerry app can provide you with competitive quotes in under a minute. Jerry takes care of all the paperwork and phone calls and can even assist you in canceling your old policy.