It may sound counterintuitive, but paying off your car loan probably won't improve your credit score. In fact, if it's the only installment loan you have, your credit score could take quite an unexpected hit. Here's why: According to the Fair Isaac Corporation, creator of the mighty FICO score, the types of credit consumers use (otherwise know as your "credit mix") accounts for 10 percent of their overall FICO score. In order to maintain a top score, consumers need to show that they can responsibly manage various types of open credit lines including mortgages, installment loans, credit cards, and retail accounts. So if your auto loan is the only installment loan you have in addition to a few credit cards, making that last payment or paying off the loan in a lump sum could really hurt your overall credit mix. In some cases, consumers have even reported a drop in their score of 50-60 points, thus disqualifying them from receiving the best interest rates on mortgages or other loans.
As mentioned by
Advertiser Disclosure: Creditnet.com is an independent, advertising-supported information and comparison service. Creditnet.com receives compensation from some, but not all of its partners whose offers appear on our site. Compensation from our advertising partners may impact how and where products appear on our site. Creditnet.com has not reviewed, nor does it display, all the credit card offers available in the marketplace. We attempt to keep information on this site accurate, but we make no warranty regarding the accuracy of any of our information, including information on specific credit cards, card issuers, credit scores, credit availability, and comparison or savings calculations. When applying for a credit card, you are advised to read the credit card application and related disclosure on the credit issuer's website for details on current terms and conditions.
Editorial Disclosure: Opinions expressed on Creditnet.com are the author’s alone, not those of credit card issuers. Our content is not provided or commissioned by credit card issuers, and it has not been reviewed, approved, or otherwise endorsed by credit card issuers.
Copyright © 2022 - Creditnet.com - All Rights Reserved