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Will paying off a car loan help your credit?

My credit isn't bad, but it's not great. I'm going to buy a house soon, and I'm hoping to improve my credit score before then. If I pay off a car loan, will that help?

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Liz Jenson · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“When you first take out a loan, it’ll probably result in a temporary drop to your credit score. If you make your payments on time, though, paying off a car loan can help your credit.
New
car loans
require a hard inquiry to your credit report, which will lower your score a bit. If you refinanced your loan at all, that probably lowered your score in a similar way.
However, if you’ve had your loan for a while and have been consistent with your payments, you’ve been adding to your credit history, which will help your score. But once you pay off the loan, you may see a small drop in your credit score since you won’t be actively making payments anymore.
If you’ve paid on time every month but still see a drop in your credit score, you may want to check a website like
Credit Karma
to make sure that every payment posted correctly. Look for anything else that seems odd, too, as your auto loan isn’t the only thing that impacts your credit score.
Improving your credit score can also help lower your car insurance rates. If you’ve recently done so, use the
Jerry
app to make sure that you’re not overpaying for insurance. Jerry will collect quotes from up to 50 top providers in under a minute and deliver low-cost options directly to your phone for free.”
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