Does paying off a personal loan early hurt my credit score?

Paying off a personal loan early eliminates the account from your open-account mix. Two credit-score factors are briefly affected: account mix (personal loans are installment credit, which adds variety to a file dominated by revolving accounts) and average age of accounts (if the loan was your oldest or one of your older accounts, closing it can shorten the average).

In practice, the score impact is typically 5-15 points and temporary. FICO scoring models keep closed accounts on your credit history for up to 10 years, so the account age benefit does not vanish immediately. The reduction in total debt load (a positive signal) often partially offsets the closure effect.

Before paying off early, confirm whether your lender charges a prepayment penalty. Most online personal-loan lenders do not, but some older bank and credit-union loan agreements still include one. The fee is usually 1-2% of the remaining balance and only makes sense to pay if the remaining interest over the life of the loan exceeds it.

For borrowers with thin credit files (fewer than 5 open accounts), the impact of closing the loan can be larger. In those cases, opening a credit-builder card before payoff can cushion the account-mix effect.