Does Paying My Loans Before They're Due Hurt My Credit Score?

One loan is only a small part of your total financial health.
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Your diligent attention to and management of your finances often leads to stellar credit scores. Paying off loans before they are due might or might not affect your credit score.

Positive Benefit Questions

Making early payments on a loan likely won’t hurt your credit, but it probably won’t benefit your credit significantly, either. The only way you might see a benefit from early repayment involves the decrease in your total debt. Your overall debt amount is not the most important factor in your credit score, though. Strong and responsible payment history is the biggest factor in your credit score.

Regular Payments

Making regular and timely payments on a loan shows responsible financial management, which will benefit your credit score over time. Paying on a loan for at least 12 to 24 months provides optimal time to demonstrate your ability to make regular payments. Making loan payments for this minimum time benefits your credit score more than it would to pay off your loan early.

Possible Penalties

Although early repayment won’t necessarily ding your credit score, you could face other penalties for paying off your loan early. Some creditors levy penalty fees for early repayment, which could negate any financial benefit you might get. If your loan is precomputed, this means that your calculated payments include principal and interest for the term of the loan. Paying off a precomputed loan early means that you will pay interest you shouldn’t have had to pay because of the early payment. In this case, you might be able to request a refund of your interest from the creditor.

Better Options

Instead of paying off a loan early and seeing only a nominal jump in your credit score, put your extra money where it can have a bigger impact. Paying down a credit card balance can result in a more significant score increase. A record of responsible and timely payments with credit cards, even paying down a large balance, can also be instrumental in proving creditworthiness and responsibility.

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