Paying Off Loans Can Hurt Your Credit

Many people work hard to pay off their loans. They think paying debt makes their credit stronger. But an expert says paying off some loans too soon can actually make your credit score drop. This news might surprise you.

Micah Smith is a credit expert. He states that installment loans are the reason. These loans have set payments over time. Car loans or student loans are examples. When you pay these loans off, your credit report changes. It shows fewer open accounts with a good payment history. This can reduce your score.

Your credit score likes a mix of credit. It likes to see both revolving credit, like credit cards, and installment loans. When an installment loan closes, that mix changes. This change can sometimes lower your score a little. Do not worry too much. The effect is often small and not long-lasting. Your score will likely go up again over time.

Keep paying your bills on time. This is the most important thing for your credit. Having less debt is still a good thing for your money. Just know how different actions affect your credit score.

Source: Fox Business