When it comes to getting a higher credit score, there are a lot of “hacks” out there. Unfortunately, not all of these hacks actually do the trick. Today, we’re going to take you through one of these so-called hacks so that you can see whether it makes sense or not for you to focus on when trying to raise your credit score.

Should You Pay Off Your Loans Early?

It may seem a bit counterintuitive, but paying your loans off early won’t actually help raise your credit score. When you pay your loans off early, you won’t have anything added to your credit report showing that you paid it all off prior to the loan’s original term. Rather, the balance of the account on your credit report will simply appear as 0.

Can I Boost My Credit Score If I Pay Off My Loans Early – Personal Tradelines

Yes, having a 0 balance could potentially help your credit score, as credit scoring models do consider the number of accounts that you have when analyzing your reports, though these scoring models do not look at the timing of when you paid off a loan.

Let’s look at an example, shall we?

Let’s say that you have an auto loan and you decide that you want to pay it off early because you heard from some source that paying your auto loan off earlier would boost your credit score, allowing you to refinance your home mortgage so that you could potentially get a better rate.

Unfortunately, that advice you received was bad. To pay off that auto loan, you decided to pull a loan out of your 401(k).

As a result of paying off the auto loan, nothing ended up changing with your credit score.

Why is that, you ask?

Well, the debt that you had with your auto loan wasn’t negatively impacting your credit score to begin with. The auto loan that you had for your new vehicle was what we call an installment loan. Installment loans are unlike your typical revolving credit loans, as you pay in installments, making them benign in terms of your credit score.

The account was not negatively impacting your consumer credit score, so in essence, getting rid of it from your credit report didn’t impact it all either.

Final Thoughts

This is just one of many “hacks” out there that people fall victim to when trying to boost their credit scores. We like to think of the old adage, “if it ain’t broke, don’t fix it.” If your loan isn’t hurting your credit score, there is no reason to rush into paying it off.

If you’re looking to potentially boost your credit score, we highly recommend looking into purchasing authorized user tradelines.

Tradelines aren’t only for the wealthy like they used to be. If you don’t have a ton of cash to spare, though you want to improve your credit, a day of work could get you the money you need to buy a tradeline!