What will improve my credit score faster- Paying off an auto loan or paying down credit cards?
I want to get my credit score up a little more, but I’m not sure what would be more beneficial. Pay off my auto loan completely? Or do I pay down some of my credit cards with high limits? Which is the best option to improve my credit score? Also if I pay down some of my credit cards will my limits get reduced?
Tags: Auto, auto loan, Cards, Credit, Down, faster, improve, loan, Paying, Score
Paying off the auto loan will probably lower your overall debt to income ratio improving your credit score. Pay off the car as soon as you can and then start throwing what you were paying in car payments towards the credit cards to get those paid off. Yes, some of your credit cards may lower your limits because of it, or for no reason at all, as the credit card companies are screwing everyone lately.
In this situation I would pay down your credit cards balance, that is the best use of your money.
If you pay off the auto loan, it won’t help your score as much as taking your utilization down on your credit cards.
To answer your question, your limits will not be reduced if you pay down the balances.
About a third of your score is based on the ratio of credit card debt to limit. Carrying balances of more than 30%, hurts your score. Pay off the credit cards and your score gets a quick boost. There is absolutely no extra advantage to carrying balances on credit cards. It just cost interest.
Additionally, the interest on the credit cards is probably more than the car. Concentrate on paying off the highest interest rate credit card first, while making minimum payments on the others. When the highest rate card is paid off, move to the next till they are all paid.
Your car loan is an installment loan which counts differently in your score than revolving credit. Installment loans build credit by making the payment over time. Paying off an installment loan early won’t help your score at all. It would save interest tho. To get the most benefit to your score, car loans have to be paid on for at least 12 to 18 months.
If you pay down the cards, it is possible your limit will be reduced. Many credit card companies are doing that. They are looking to limit their exposure. People who carry large credit card balances for long periods and only pay minimum or slightly more, are not considered ‘good’ customers anymore. They are higher risk.