It’s well known that a car loan will help your credit. But, if you’re a smart and savvy consumer, you’ve probably wondered about the specifics: how much does your credit score increase after paying off a car loan?
There is no set amount that your credit score will increase when you pay off an auto loan or any other loan for that matter. In general, paying off an installment loan such as an auto loan or mortgage, only increases your score a few points. Rather, it is the process of making an on-time payments that gradually helps your credit.
Car Loan Credit Scores: an Overview
FICO built a modeling tool to help you understand how changes in your credit report can change your score. You can find it at www.myfico.com. Paying off an auto loan would probably raise your score by around five points. Your score will get the biggest boost from making all of your payments on time and using multiple types of credit. So, on time payments coupled with an active credit card, and an auto loan would boost your score significantly.
Car Loan vs Credit Card: Which to Pay off First?
If you have an installment loan and a credit card and you are looking to increase your credit score by paying one of the debts off, you should pay the credit card off first. Why? Thirty percent of your credit score is built on your debt utilization ratio. So, if you have a credit card with a limit of $2,500 and carry a balance of $2,000 your score will suffer a great deal. On the other hand, if you have a balance of just $500, your score will be 75-100 points higher. Pay that balance off and you may see a jump of an additional 50 points.