If I pay my car loan repayment in advance, will my credit score increase?

Question by Katsutoshi: If I pay my car loan repayment in advance, will my credit score increase?
I’m thinking of buying another car.

1) Should I pay current loan in advance, then get another car after loan is completed.
2) Should I keep to pay current loan on schedule, then get another car before loan is completed.

I guess I can increase my credit score if I pay it in advance. However I also hear that paying in advance can decrease the score. Which is the true?

Best answer:

Answer by tudorjason
No, your score won’t increase if you pay off the car loan early. It isn’t about paying off debt (for secured installment debt anyway), it’s about payment history and not spending too much credit.

You should really only obtain debt if you need it. Do you want to replace the one you just paid in full or do want a second car? If it’s the former and you have money to pay off the loan entirely, I would suggest using the money for other things. Pay off some other debt, improve your education, invest it in an ROTH IRA, or save it because you can never have too much savings.

Because of all this, I think you should just stay on schedule.

And it’s sort of, maybe, true about paying off in advance will decrease your score. All things being equal as they are now on your credit report, if you paid off your car loan in advance, the payment history will fall off your report sooner than it has to and your score will drop because it will lose that history. But by the time your car loan does fall off, your accounts will have aged more replacing that lost history, so your score probably wouldn’t drop.

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