If I take the personal loan, start making payments regularly and then decide to completely repay it - what will happen to my credit rating? Would it improve, decrease or not be affected?


It won't matter, the credit agencies will see that the loan has been repaid and it doesn't matter if it's earlier than when it is supposed to be paid off.

You will have to talk to your bank on whether or not there is an early payoff fee. Because you're paying the loan off early, the bank is going to miss out on the interest they would have otherwise been able to collect.


The credit rating is the output from a behavior model that indicates the likelihood that a bank will earn money if they give you a loan. Early repayment of a loan will affect your credit rating, but the net impact depends on the other factors that go into the particular model. Even though the bank made less money, the overall risk of your portfolio is reduced, and you have more disposable income. I would expect the impact to be nearly neutral for a single loan, but the algorithms are proprietary.

  • As written, this answer is wrong in many ways. Credit score models are built to predict risk of defaulting on a loan, and have nothing to do with estimating profitability. Also, credit reports have zero information on a person's disposable income and credit scores models do not include income (disposable or otherwise) in any factors and are not meant to indicate changes in disposable income. – dwizum Aug 29 '19 at 13:45
  • Doesn't defaulting on a loan come down to being unprofitable for the lender? The lenders only interest in offering the loan is to make a profit. – pojo-guy Aug 31 '19 at 9:57
  • Yes, defaulting is not profitable. But the risk of default is essentially balanced out of the equation by a higher interest rate for riskier consumers. There is no intentional correlation between credit score and profit, and often times, consumers with very high scores are the least profitable for a lender. – dwizum Sep 1 '19 at 19:20
  • According to my former mortgage officer, now bank vp, the only job of the loans officer at the bank is to decide whether, should you default on the loan, the bank can still make a profit. If they can still make a profit, they will do business. – pojo-guy Sep 10 '19 at 17:57
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    Suit yourself. I probably wrote the analytics software your VP is using to make that decision (or at least, that which is benchmarking his performance against other institutions). But I understand that to you, I'm just a stranger on the internet. – dwizum Sep 12 '19 at 12:44

There can be a slight indirect effect, but it should not keep you from paying off a loan, as the interest you save is for sure more valuable.

For example, assume you have a 10k$ credit card, and a 20k$ car loan. Assume further the car loan is halfway paid off, and you carry 8k$ on your card. This totals to 18k$ of 30k$ 'credit total' used, or 60%.
By paying off the car loan fully, you end up with 8k$ of 10k$ or 80%, which is worse and your score goes a bit down.

Similar logic applies if the age of the car credit is significant compared to the credit card, as paying it off removes it from the calculation and reduces the average age.

Both cases are rare, and the effect is often the other way - positive for you.

  • Balance on car loans (or personal loans as indicated in the OP's question) are not included in the credit utilization factor in current models - only revolving lines (i.e. credit cards) are. – dwizum Aug 29 '19 at 13:47
  • @dwizum, you should inform the credit agencies of that, as they still used it when I checked last month. – Aganju Aug 29 '19 at 20:32