Will paying off loans early damage credit rating?

[bigfatnick]

Hi all, I'm looking to get a mortgage in about a year, maybe a touch longer. My credit rating is assumed to be good (never been refused for anything, never done anything wrong - will do a credit check shortly).

I'm wondering if my credit rating and potential mortgage suitability would be affected if I pay off a couple of loans (one a personal loan used to buy a car with about £4k standing on it - can be paid off now. The other a 0% shop credit for a £2500 mountain bike with about £600 remaining left on it - can be paid off next payday), or should i let them run their terms? Would regular loan payments be viewed more favourably? My logic being that money lending companies don't like people who pay up early, losing them interest revenue?

I really don't want to pay interest on that final £4k, and i want it gone, so i can see my savings grow at a silly rate, further encouraging me to eat nothing but beans on toast and rattling the last drops of unleaded out of the cheap pump at tescos.


Thanks all.

[bigfatnick]

this is what i thought. However, i have it in my head that i've been told (from god knows where) that paying loans of early doesn't do your credit rating any favours.

I'm so excited to get it all paid off, but want to cover all bases to make sure i don't do something daft.

[turbobloke]

swerni said:

I'm not an IFA...

Me neither!

I seem to recall reading that if you pay off your credit card(s) balance in full each month, this is good for your finances but not so good for getting more cards or loans because the relevant companies see they probably won't be getting any interest. Paying some loan instalments then paying off the balance early may not be so bad and may be a positive thing due to paying some interest first, then demonstrating a reasonably solid personal position when the balance is cleared.

An IFA may be along shortly to correct any or all of that

[joe_90]

No, but on one loan if I payed it full term I would get over 1.2K back? I was going to pay it all off early, but that made it pointless. Most odd.

[bigfatnick]

turbobloke said:

I seem to recall reading that if you pay off your credit card(s) balance in full each month, this is good for your finances but not so good for getting more cards or loans because the relevant companies see they probably won't be getting any interest.

This sounds like me. However, I guess with a mortgage, they know they have you for a good long while at least with a mortgage, must be a different kettle of fish to chucking a few hundred quid here and there on loans and credit cards?

turbobloke said:

Paying some loan instalments then paying off the balance early may not be so bad and may be a positive thing due to paying some interest first, then demonstrating a reasonably solid personal position when the balance is cleared.

I like this logic!

[Sarnie]

bigfatnick said:

Hi all, I'm looking to get a mortgage in about a year, maybe a touch longer. My credit rating is assumed to be good (never been refused for anything, never done anything wrong - will do a credit check shortly).

I'm wondering if my credit rating and potential mortgage suitability would be affected if I pay off a couple of loans (one a personal loan used to buy a car with about £4k standing on it - can be paid off now. The other a 0% shop credit for a £2500 mountain bike with about £600 remaining left on it - can be paid off next payday), or should i let them run their terms? Would regular loan payments be viewed more favourably? My logic being that money lending companies don't like people who pay up early, losing them interest revenue?

I really don't want to pay interest on that final £4k, and i want it gone, so i can see my savings grow at a silly rate, further encouraging me to eat nothing but beans on toast and rattling the last drops of unleaded out of the cheap pump at tescos.


Thanks all.

The more credit history you have of successfully paying off debt, the more chance you have of being accepted. Therefore, paying off loans early, reduces the amount of payments occurring on your credit file, thus reducing your positive credit score.