Money shouldn´t stop making your plans come true. Learn how personal loans can help you!
Does Paying Off a Loan Early Hurt Credit
21 Mar 2019

Installment Loans: Does Paying Off a Loan Early Hurt Credit Scores?

Posted By

Approximately one-third of Americans currently have a bad credit score. Are you one of them?

If so, you’ve probably spent a lot of time trying to figure out how you can improve your credit score. You might have even considered trying to pay off your installment loans (auto loans, student loans, etc.) early.

Is this a smart strategy, though? Does paying off a loan early hurt credit or help it?

If you’ve been looking for an answer to this question, keep reading. Everything you need to know about installment loans and paying them off is explained below.

Editor’s note: If you like this article, feel free to join the conversation and leave your comments at the bottom!
Check out for more tips on installment loans.

What is an Installment Loan?

An installment loan is a type of loan that you pay off at regular intervals over a specific period of time. Mortgages, auto loans, student loans, and some personal loans online are all considered types of installment loans.

Effect of Paying Off Installment Loans Early

Some people are under the impression that, if they pay off their installment loan earlier than they’re supposed to, this will boost their credit score. This isn’t necessarily the case, though.

In reality, only a small percent of your credit score is influenced by the number of bad credit loans you’ve taken out and the type of loans you’ve taken out. Because of this, credit agencies don’t really give you bonus points for paying off a loan early.

There are other factors that have a bigger influence on your credit score. For example, about 35 percent of your score is represented by your payment history and your record of making payments on time.

Closing Accounts Early

Your credit history also plays an important role. If you’ve had credit accounts that you’ve been paying on a regular basis for an extended period of time, that will have a positive effect on your credit score.

Basically, credit agencies would rather see that you have open accounts that you’re paying off consistently. This has more of a positive impact than having a closed account from an installment loan that you paid off early.

Keep in mind, too, that closed accounts do not immediately disappear from your credit report. They remain in your credit report for up to seven years if you had late payments and up to ten years if your loan was paid off in good standing.

As you can see, those accounts from monthly installment loans for bad credit don’t automatically go away. Because of this, it doesn’t really do you a lot of good to pay off an installment loan early.

Does Paying Off a Loan Early Hurt Credit?

All that being said, paying off a personal loan no credit check early also does not really hurt your credit.

Your credit score will not decrease because you pay the loan off early. There are also some benefits that come with paying off a loan early. For example, you don’t have to worry about making the monthly payment toward the loan balance, and you get to save money on interest.

At the same time, though, you can no longer use the regular payments on that loan to help build your credit score. You’ll also be out the lump sum of money that you used to pay off the loan.

If you want to pay off an installment loan early because you have the money and are just tired of dealing with the payment, you can certainly do so.

There won’t really be any serious negative consequences if you do. There just won’t really be many — if any — positive consequences, either.

Better Ways to Boost Your Credit Score

If you have been considering paying off an installment loan early to try and boost your credit score, remember that there are other approaches that may yield better results.

Before you pay off your loan early, consider some of these other steps to try and build up your credit score:

Make Your Payments on Time

One of the best things you can do to improve your credit score is to make sure you are making all of your payday loan no credit check payments on time.

Instead of trying to pay off your whole installment loan all at once, set up automatic payments. You can also set reminders for yourself to make sure you always make your monthly payments when you’re supposed to.

This will have a bigger impact on your credit score, and it’s less of a financial strain on you.

Pay Down Your Revolving Debt

Instead of focusing on paying off your installment loan all at once, make an effort to pay down your revolving debt — such as your credit card debt.

Making an effort to pay your credit card balance in full each month more positively affects your credit score compared to trying to pay off the full balance of an installment loan.

Keep Credit Utilization Low

Once you’ve paid own your credit card debt, make an effort to keep your credit utilization as low as possible. Try not to charge more than 30 percent of your total credit limit.

Consolidate Your Credit Card Debt

You can also use a personal installment loan to consolidate your credit card debt.

If you have a lot of credit cards with varying interest rates, try using a loan to pay off those balances. This can help to lower your monthly payments and provide you with the added benefit of a fixed interest rate.

Limit Your Credit Applications

Finally, be sure to limit your credit card or no credit check loan applications.

Every time you apply and a lender performs a hard inquiry on your credit report, your credit score drops by a few points.

Those points can add up over time, especially if you’re regularly applying for payday loans online and credit cards. As a result, your credit score is going to take a pretty serious hit.

Start Improving Your Credit Today

As you can see, there are a lot of different approaches you can take to improve your credit score. Paying off an installment loan early isn’t necessarily one of them, though.

Now that you have a clear answer to the question, “does paying off a loan early hurt credit?” you can start taking other steps to improve your credit, such as the ones explained above.

If you have a lot of debt that is hurting your credit score, you might also want to consider using an installment loan to consolidate that debt and avoid paying hefty interest rates.

Apply online for an installment loan today. We’ll get back to you as soon as possible to let you know if you qualify.