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Question By
Derod216

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How do loans calculate into the credit score? Are they posted as credit balance?
Does paying off loans affect credit score

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Amounts owed on installment loans do not have the effect of high credit card balances. You are penalized more for high credit card balances. As for your second question, paying off loans will most often cause scores to DECREASE as you are closing out an active account which was contributing to your credit scores in positive ways. All I can advise at this point is that you need to spend some time reading about all of this, it is very important and is worthy of your time.

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Reply by
rigidity45

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I would think that an installment loan is expected to paid off and closed, so why would it cause a decrease in a credit score as long as the payments are 100% on time and no missed payments?

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@rigidity45

Please understand that what builds and maintains good credit scores is Open and Active accounts reporting on-time payments every month, closed loans even if closed in good standing do not do that. I understand your confusion as it really doesn't seem logical that a person should be punished for paying off a loan, you would think that you would be rewarded with a score increase for paying off a loan, but it just doesn't work that way. Be sure to spend some time reading about this as well as all other credit topics as there is a lot to know.

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