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Paying off auto loan early

Question: Will paying off my car loan early (as in 4 years early) negatively affect my credit score or credit history? I opened the loan in part to build a stronger credit history. While I don't have a bad credit score (I'm above 750), I don't have a whole lot to show - no other loans, no mortgage payment, and I pay my credit card in full each month. The big plan is to purchase a house in the next 5 years and I'd like to line up a good credit history when the time comes to shop for a mortgage. Your thoughts? Jason, East Glacier Park, MT

Answer: I'd get rid of the auto loan. First of all, you shouldn't let concerns about your credit score stop you from practicing good personal finance--eliminating loan payments early.

Secondly, paying off the auto loan won't have a negative impact on your credit score. Once again, you'll have demonstrated that you're a good borrower. More important, you pay off the balance on your credit card every month--a boon to your credit score. You don't need to carry a credit card balance to keep a high credit score.

Last, I can tell you from personal experience it's a good feeling to get rid of an auto loan early.

About the author

Chris Farrell is the economics editor of Marketplace Money.


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