Does Paying My Credit Early Hurt My Credit Score?

Your three-digit FICO score is used by potential creditors to determine your creditworthiness. The higher the score, the more likely you are to be issued credit and receive lower interest rates. Some factors, such as paying late and carrying high outstanding balances in relation to your total available credit, hurt your score. Paying early generally has no negative impact.

Early Monthly Payments

According to credit reporting agency Experian, paying credit card bills early each month won't hurt your credit, but it won't necessarily help it, either. Credit card issuers typically follow a monthly billing cycle in which your balance due is calculated once each month, and it matters little when you make your payment within the cycle. Card issuers are more concerned that you make your payment by the required due date.

Paying Outstanding Balance

Paying off an outstanding balance of a debt obligation in full also normally does not hurt your credit score. In fact, the CarsDirect website reports that paying off a car loan early can actually help your credit score and demonstrate to lenders that you can manage credit effectively. You can maximize the positive impact on your score by making timely payments for 12 to 24 months before paying off the remaining balance.

Prepayment Penalties

If you are thinking of paying off a debt balance early, check your loan contract to see if it includes a prepayment clause that institutes a penalty. Home and auto lenders sometimes include these penalties to offset some of the interest they will lose if you pay off the balance before the final due date. While prepaying won't negatively impact your credit score, you won't benefit as much as you had hoped.

Closing Accounts

You could harm your credit score if you pay off a balance on a credit card and then close the account. The CNNMoney website indicates that one factor that determines your score is the length of your credit history. If you choose to pay off a card you've owned for several years and always made timely payments, paying off the balance and closing the account shortens your credit history and reduces your score. A better strategy is to pay off the balance and keep the account open.