Paying Off Loans Can Hurt Credit Scores
A credit expert warns that paying off installment loans early could surprisingly lower your credit score.
Paying off your car loan or student loan might feel like a big win. But a credit expert, Micah Smith, says this can actually hurt your credit score. Many people aim to pay off debts fast. They think this will always help their credit. Smith says this is not always true.
Installment loans are different from credit cards. With installment loans, you borrow a set amount. Then you make regular payments over time. When you pay these off, the account closes. This removes a positive payment history from your active credit report. This can make your credit score drop.
Smith suggests keeping an installment loan open. Make small payments on it for a longer time. This keeps the good payment history active. This strategy can help your credit score stay strong or even grow.
Building good credit takes time. It involves more than just paying off debt. It means showing you can handle different types of credit responsibly. Paying off an installment loan early removes one way to show this responsibility.
Source: Fox Business
