Paying off a loan typically doesn't cause your credit score to drop. In fact, it often has a positive effect on your credit score because it demonstrates responsible financial behavior and reduces your overall debt.
To directly answer your question: No. There shouldn't be anything negative about paying your loan off faster. If you have a lower rate (<5%), you might do better if you invested that money instead.
Sometimes lenders like to see that you're clearing your debt over time in monthly repayments as it shows you're managing your money well. However, it could still be worthwhile using extra cash to repay your loan early as any negative impact on your credit file is likely to be small and temporary.
If you're close to maxing out your credit cards, your credit score could jump 10 points or more when you pay off credit card balances completely. If you haven't used most of your available credit, you might only gain a few points when you pay off credit card debt.
Your credit score may drop after you pay off debt because the credit scoring system factors in things like your average account age and credit mix. If you applied for a loan to consolidate debt, the lender's hard credit inquiry can also ding your score.
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
Potential Drawbacks of Paying Off a Loan Early
Also, paying off a loan early may affect your credit score. Loan prepayment reduces your credit mix and shortens your credit history, factoring in a lower score. Ensure that paying off a loan early does not deplete your emergency funds.
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.
Applying for a personal loan can temporarily lower your credit scores by a few points. But the overall effect of the loan on your credit scores largely depends on how you manage the loan. If you make consistent, on-time payments, for example, getting a personal loan could help you improve your credit scores over time.
Repaying early can often be worth it, as you'll reduce the amount of interest you'll pay. It can also have a positive affect on mental health, though it's crucial to ensure it's also the correct thing to do financially, as you may be charged fees.
There are some differences around how the various data elements on a credit report factor into the score calculations. Although credit scoring models vary, generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.
In most cases, paying off a loan early can save money, but check first to make sure prepayment penalties, precomputed interest or tax issues don't neutralize this advantage. Paying off credit cards and high-interest personal loans should come first. This will save money and will almost always improve your credit score.
A FICO® Score of 650 places you within a population of consumers whose credit may be seen as Fair. Your 650 FICO® Score is lower than the average U.S. credit score. Statistically speaking, 28% of consumers with credit scores in the Fair range are likely to become seriously delinquent in the future.
While a hard inquiry for a personal loan can trigger your credit scores to drop slightly (usually less than five points), your scores are likely to recover within a few months to one year—and the impact will decrease with time as you continue to make timely bill payments.
It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.
A 700 credit score is considered a good score on the most common credit score range, which runs from 300 to 850. How does your score compare with others? You're within the good credit score range, which runs from 690 to 719.
That means paying off debt in collections won't improve your score. A collection account remains on your credit report for seven years from the date the debt originally became overdue.
Paying off a loan can positively or negatively impact your credit scores in the short term, depending on your mix of account types, account balances and other factors.
You won't owe additional money on a settled debt, and the account could be updated on your credit report to show it's paid in full and has a zero balance.
If you want to pay off your personal loan early, you can do so any time and OneMain will not charge you a prepayment fee.
What is the highest credit score possible? To start off: No, it's not possible to have a 900 credit score in the United States. In some countries that use other models, like Canada, people could have a score of 900. The current scoring models in the U.S. have a maximum of 850.
Membership in the 800+ credit score club is quite exclusive, with fewer than 1 in 6 people boasting a score that high, according to WalletHub data. Since so few people have such high scores, lenders don't split the 800+ credit score crowd into smaller groups that get separate offers.