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Paying off personal unsecured loan off early

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ttonnka3
Member

Paying off personal unsecured loan off early

Hello I just got approved for a unsecured personal loan about 2months ago but now I am thinking to pay it off early like next month what will this do to my credit scores?

What are the pros and cons on this? I have no lates or and negative accounts on my credit report
Message 1 of 7
6 REPLIES 6
Kostya1992
Established Contributor

Re: Paying off personal unsecured loan off early

I heard lenders don't like that because they fill out all this paperwork and do all this work for a loan only for it to be paid off the next month; they lose money!

My advice: pay off 90% of it and pay the other 10% over the course of 1 year. A loan history of 1 year+ is really beneficial.
TU08 FICO850
EX08 FICO850
EQ08 FICO850

Message 2 of 7
ttonnka3
Member

Re: Paying off personal unsecured loan off early

What would thus do to my credit is it a good ur a bad thing to pay off this early within a couple months would my score jump?
Message 3 of 7
starry1
Valued Contributor

Re: Paying off personal unsecured loan off early


@ttonnka3 wrote:
What would thus do to my credit is it a good ur a bad thing to pay off this early within a couple months would my score jump?
It might, but it is more likely to drop some.  FICO likes you to have a mix of revolving and installments for optimum scoring.

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Message 4 of 7
takeshi74
Senior Contributor

Re: Paying off personal unsecured loan off early

Difficult to say.  It's all a matter of how the impacts of the various factors add up for you relative to your existing credit profile.  You've already taken the hits due to the HP and reduction in AAoA.  Closing will not reverse those.  Paying off and closing, however, will affect your mix of credit and DTI.  No telling what that means in terms of points though.

Message 5 of 7
MarineVietVet
Moderator Emeritus

Re: Paying off personal unsecured loan off early


@ttonnka3 wrote:
Hello I just got approved for a unsecured personal loan about 2months ago but now I am thinking to pay it off early like next month what will this do to my credit scores?

What are the pros and cons on this? I have no lates or and negative accounts on my credit report

As you've seen there are varied opinions on this and all have validity.

 

My view is always pay every debt off as fast as you can. Being debt free trumps a few score points.

Message 6 of 7
CreditDunce
Valued Contributor

Re: Paying off personal unsecured loan off early

I agree with MarineVietVet here.  Finances always trumps FICO score.  FICO score is only important because it helps save you money in finances.  If this is a high interest loan, pay it off as soon as possible.

 

Having said that, my guess is paying the loan off early will not have much effect on your score.  If it is your last open installment loan, then your score may take a small hit due to not having an open installment loan.  However, the loan hasn't been open very long.  We normally see the big drops take place when someone pays off an installment loan they have had for a long time.   A brand new installment loan is probably hurting as much as it is helping.  The paid off loan will stay on your CR's for ~7-10 years. 

 

If this is your only installment loan and you are concerned about not having an installment loan, think about a small shared secured loan.    They aren't worth the trouble to me, but they don't cost that much in interest.

Message 7 of 7
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