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Paying Off My Car Loan Equals Better Credit?!

by Larry Chiang on December 14, 2012

By Larry Chiang

I got a great question

Estela P. Seymour (@Estela_Seymour) 12/13/12 10:40 PM Will paying off my car loan all at once improve my credit score? #auto #credit #car #loans

Credit scores are actually increased when you pay a monthly car payment. Having one car payment and two lines of unsecured credit that you pay on time gets you to a FICO near 800.

Two lines of unsecured credit (like a visa or MasterCard that you pay before the grace period expires) that you pay on-time gets you a FICO just above 750. So what I mean is that two regular credit cards (meaning lines of unsecured credit) getting paid perfectly with at least 20.00 charged and $20 being paid on-time is a FICO circa 755.

Buy-here-pay-here car loan is different. Many buy-here-pay-here do not report to Equifax, Experian and Trans Union.

Although not having a car loan drops your credit score, you never want to trade debt for a higher FICO score.

Paying off your car loan will drop your FICO score but REMEMBER: you never want to trade debt for a higher FICO score.

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