Will Paying Off My Auto Loan Increase My Credit Score? – Part 1


Hi guys! We’re back with
another credit question: Will paying off my car loan
increase my credit score? Well it actually depends on
your specific situation. Let’s take a look at one scenario. Say Ted has a good credit score and
a low interest rate on his auto loan. With a high credit score already,
it could be smarter for Ted to put his extra cash toward paying off
higher interest debt — like from credit cards — or to
save it for emergencies. First, because of his low interest rate, Ted won’t see
a lot of extra savings by paying off his loan. Second, keeping a loan open could help
maintain his good credit score. Here’s how. An auto loan is an installment loan with a number of scheduled
payments over a certain period of time. Paying it off in full closes the account. While that closed account will still appear on
Ted’s credit report for seven to ten years it won’t impact his credit score as much. Finally, potential lenders like to see
a mix of credit types. If paying off his loan leaves Ted with
only credit card debt outstanding, he might not look as favorable
to potential lenders. So for someone like Ted, paying off an auto loan won’t necessarily result in a jump in your credit score. Because once you already have a high credit score,
it becomes a lot harder to raise it. However in some situations,
it’s better to pay off the debt. We’ll explain more in our next video. See you next time.

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