Will paying off my car loan early hurt my credit score?

I've got enough money saved up that I'm thinking of paying off my car loan early. I'm just worried that doing so will hurt my credit.

“You might assume that the answer is no. But surprisingly, paying off your car loan early can hurt your credit score. How?
One of the factors impacting your credit score is the number of open credit accounts you have. Open accounts have a greater impact than closed ones since they show how you are handling your credit right now. If you pay off your car loan early and close that open account, your credit score will drop a bit. But the drop should be temporary, especially if you had a good payment record with the now paid-off car loan.
Another factor impacting your credit score is your “credit mix.” This comprises the variety of loans in your credit file, including credit cards, a mortgage, a car loan, a student loan, etc. The more variety, the better — having a mix of credit shows that you can handle multiple loan types. Closing on a car loan can lessen your credit mix, resulting in a negative effect on your credit score. “
Jim Donaher
Answered on Apr 05, 2021
Jim Donaher is a freelance writer and manager with over 35 years' experience in the insurance, banking, and investment management businesses. He provides expertise on a range of topics and is able to explain complex industry information in layman's terms. Jim is the author of two books, including Call Him, He's Home: A Guide to Prayer for Regular People and Then Larry Smiled, a novel about life, death, accountability, and salvation. Taormina, Sicily is his happy place!

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