November 18th, 2013

Will Paying Off My Auto Loan Affect My Credit Score? – Part 1

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In this Credit Karma FAQ video, Bethy and Ezra tackle another commonly asked question in our Credit Advice Center: “Will Paying Off My Auto Loan Affect My Credit Score?” The answer is tricky, as it depends on your specific situation. Check out the video to learn more!

Ted’s Situation

About Ted: Has a good credit score and a low interest rate on his loan

How will paying off his auto loan affect Ted’s score?
With a high credit score already, it could be smarter for Ted to put his extra cash toward paying off higher-interest debt like from credit cards or to save for emergencies.

  • Because of his low interest rate, Ted won’t see a lot of extra savings by paying off the loan.
  • Keeping the loan open could help maintain his good score. An auto loan is an installment loan with a number of scheduled payments over a certain period of time. Paying it off in full closes the account. While closed accounts will still appear on Ted’s credit report for seven to ten years, the closed account won’t impact his score as much.
  • Potential lenders like to see a mix of credit types. If paying off his loan leaves Ted with only credit cards outstanding, he might not look as favorable to potential lenders.

So for someone like Ted, paying off your auto loan won’t necessarily result in a jump in your credit score. Once you have a high credit score, it’s harder to raise it.

However, for consumers in a different situation, it’s better to pay off your debt. We’ll explain more in our next video.

Disclaimer: This video provides general information about credit and is not intended to advise about your personal financial situation. Consult a financial, legal, or other professional adviser. In other words, someone who’s not a video.

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Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.


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    Richard Samuel at 12:51 am on November 20, 2013
  2. When I paid for my “consumer” credit scores through all 3 bureaus this year, they were 750, 719 and 690. When i applied for a mortgage I was told that the almighty credit bureaus are not giving me a score. Simply because i did not have any current open lines of credit. I had paid off my vehicle 9 months beforehand. I now have a secure credit card and am waiting to find out what my future “leinholder” score will be so I can buy a home. Its amazing to me that the leinholders will not consider someone with established credit that does not wish to have “debt”. No one seemed to care that I paid off my vehicle. They were only concerned with revolving debt. Is it not our goal to become debt free so that we dont have to worry about paying bills when we retire? I despise how things work in our country.

    Nicole at 9:30 am on November 22, 2013
  3. So defaulting on a car loan hammers your score but paying it off hurts it too.

    Dan Hayes at 7:44 pm on December 16, 2014

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