Paying Off Loans Can Hurt Your Credit
A credit expert warns that paying off installment loans early could unexpectedly lower your credit score.
Many people work hard to pay off their loans. They think it will help their credit score. But a credit expert, Micah Smith, says this might not be true. Paying off an installment loan too fast can actually hurt your score.
Installment loans are things like car loans or mortgages. You borrow a set amount and pay it back over time. Smith says closing these accounts early removes them from your credit history. This can make your credit report look less robust. A shorter credit history can mean a lower score.
Your credit score looks at how long you have had credit. It also checks different types of credit you use. When you close an old loan, you lose that history. You also lose a type of credit that shows you can manage debt well.
Smith suggests keeping installment loans open for their full term if you can. This helps build a strong credit history. A good credit score opens doors for better rates on future loans and credit cards.
Source: Fox Business
