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Question By
Ranger431

3 Contributions
1 Person Helped
Credit Score - Pay down car loan balance or keep as-is?
I understand paying off an entire car loan will lower my score due to closing the account. What if I pay-down the principal like a credit card, say less than 30% of the original opening balance?

I will be purchasing a home soon, I have enough funds for mortgage down-payment plus all fees, and to pay-off my car loan (currently at 75% of the original opening balance). Whatever I can do to increase my credit score to secure a favorable mortgage interest rate, will help tremendously.

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Top Contributor
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To ensure you do not harm your score, it would be best to lower the balance as opposed to paying it off and closing the account.  Paying it off will take a direct hit to your credit score as it is no longer a line of credit.    You did not indicate the condition of any credit card debts.   As you consider your pay downs, always consider the highest interest you are paying.   Paying off/down high interest credit cards may serve you better.   As you work for the mortgage, they will want to see as small of a debt as possible overall.

Reply by
Ranger431

3 Contributions
1 Person Helped

I have 2 credit cards which I use as revolving purchases for gas/groceries due to the cash-back, I currently don't owe anything on my cards. I don't have any other outstanding debt, no student loans, just my car loan. Will paying a chunk of the principal like a credit card, really improve my credit score?

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