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Does it hurt a score to pay off debt?

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Anonymous
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Does it hurt a score to pay off debt?

I have car loan that has three payments left and a balance of $450.  Part of me just wants to close the loan out now so I don't have to think about it anymore.  I'm wanting to apply for a new credit card soon.  Would paying off the loan help or hurt the chances, if at all?  Any advice would be appreciated. 

Message 1 of 6
5 REPLIES 5
MarineVietVet
Moderator Emeritus

Re: Does it hurt a score to pay off debt?


@Anonymous wrote:

I have car loan that has three payments left and a balance of $450.  Part of me just wants to close the loan out now so I don't have to think about it anymore.  I'm wanting to apply for a new credit card soon.  Would paying off the loan help or hurt the chances, if at all?  Any advice would be appreciated. 


Is this your only installment loan?

 

It seems that FICO 08 is more sensitive to no open installment loans than the older scoring models and people are reporting various point loses after closing their only installment but only time will tell if you are dinged at all by paying this off.

 

Look at it as the glass half full. You will have one less debt and that is always a good thing.

Message 2 of 6
Anonymous
Not applicable

Re: Does it hurt a score to pay off debt?

It's so frustrating that your score can go down even when your last installment loan is on the report but closed in good standing.

It'd be pretty insane to open a loan and pay interest exclusively for a few points though.

Oh well, once you're up in the prime bracket it doesn't much matter anyway.
Message 3 of 6
takeshi74
Senior Contributor

Re: Does it hurt a score to pay off debt?


@Anonymous wrote:

Does it hurt a score to pay off debt?


You clarified in your OP but debts aren't all the same.  It's typical to see a slight drop in score from paying off an installment but you should consider that having the installment was boosting your score.  Whether or not to pay off an installment shouldn't be based solely on score impact but your overall financial health.

 

If paying off an installment jeopardizes a credit card app then you probably have other issues with your credit that you need to address.

Message 4 of 6
Gunnar419
Valued Contributor

Re: Does it hurt a score to pay off debt?


@Anonymous wrote:

I have car loan that has three payments left and a balance of $450.  Part of me just wants to close the loan out now so I don't have to think about it anymore.  I'm wanting to apply for a new credit card soon.  Would paying off the loan help or hurt the chances, if at all?  Any advice would be appreciated. 


As MarineVietVet noted, if that car loan is your only installment loan, you'll probably take a score hit once it reports as being paid off. Lately people have been reporting some fairly large hits (30 points is one figure that comes to mind though of of course you never know in advance and your hit might be tiny). Since the loan is just three payments from being paid anyhow it doesn't matter much whether you pay it in one lump now or make those final monthly payments. I completely understand the desire just to have the loan gone and in your shoes I'd go ahead and pay it off.

 

If you want a new credit card, though, you might just go ahead and app BEFORE making that payoff.

Message 5 of 6
Anonymous
Not applicable

Re: Does it hurt a score to pay off debt?

Thanks for the advice.  No real credit problems.  In great financial shape, just mismanaged an account a couple of years ago before I knew what credit was.  Just want to apply for a seemingly hard-to-get card [USBank Cash+] that offers a bonus category that could benefit my large cellphone bill each month.  Want to give myself the best chance of being accepted.  Don't live in a USBank state and hear that it can be a difficult card to get as it is.  I think I will just make the three payments as scheduled and hopefully raise my score a tick without having much debt to my name. 

Message 6 of 6
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