Paying Off Loans Can Hurt Your Credit
Paying off installment loans early can actually lower your credit score, a credit expert warns.
Many people work hard to pay off their loans. They think this will always help their credit score. However, a credit expert shares a surprising truth. Paying off certain loans early can actually make your score drop.
Micah Smith, a credit repair expert, points this out. He says that closing an installment loan account can cut your credit score. An installment loan has fixed payments over a set time. Examples include car loans or mortgages. When you pay it off and close the account, it changes your credit mix.
Your credit score looks at different types of credit. Having a good mix helps your score. When you close an installment loan, you lose that type of credit from your report. This can make your credit mix look less diverse. A less diverse mix can lead to a lower score.
This does not mean you should keep debt. It means understanding how your credit score works. Always weigh the pros and cons of paying off loans early. Sometimes, keeping a loan with a low balance open for its full term helps your score more.
Source: Fox Business
