Does paying off a car loan early hurt your credit? | Jerry

Both of your friends are correct—ultimately, it comes down to a person’s financial situation. Paying off a car loan early can hurt your credit temporarily, but it can also help if you have a high debt-to-income ratio.

Having different credit accounts and making consistent loan payments help build your credit history. If you pay off your loan, you’ll see a decrease in your credit score since you’re reducing your credit mix.

If you have a thin credit file, having another line of credit, such as a car loan , can add value to your credit mix.. If you pay off your loan, you’ll see a decrease in your credit score since you’re reducing your credit mix.

On the other hand, if you have a high debt-to-income ratio, paying off your car loan could help improve your credit score. By paying off your loan, you’d reduce the amount of debt you have, which will lower your debt-to-income ratio. When you successfully pay off a loan, lenders also consider you a lower risk as you’re less likely to default on a loan in the future.

Before you decide whether to pay off your car loan, consider using a credit score calculator. Some companies or credit services allow you to estimate how making changes to your credit would impact your score.

If you want to save money to pay off your car loan, use the Jerry app to save on your car insurance. A licensed broker, the Jerry app does all the hard work of finding cheaper quotes from the top name-brand insurance companies and buying new car insurance. Jerry will even help you cancel your old policy.