questionswhat is the best strategy to improve my credit…


From what I've heard before, consistent on-time payments are what really help. If you do end up paying more than the minimum, it might be a good idea to make sure that you're making regular payments on something else (like a credit card or home loan) once you're done paying off the auto loan. Please correct me if I'm wrong.


For purposes of your credit score, really the only thing you can do is "pay the loan". Paying it off early has some minor effect, in that your debt-to-income ratio will change, but overall your bank tells the credit bureaus one thing and one thing only, that being that the loan payments are being made on a timely basis. I quite literally just (as in 8 days ago) paid off my car exactly that way, by paying more than what I was 'supposed to' each month. What the credit union has been reporting each month is the status is "paying/paid as per agreement".

There are a lot of companies that will charge you a pretty penny, promising to fix your credit score. Bottom line is the ONLY thing that will fix your score is paying your loans. You don't get bonus points for paying them early, but if you have 'disposable' income, paying your highest-interest loan off early, then using the money you were spending there to pay off the next-highest and so on down the line is a wise investment.


Paying any loan off early is always advantageous. Despite common misconceptions, paying only the minimum over a longer period of time doesn't help your credit more than simply paying it off ASAP.

The real question is, how investment savvy are you? If you can invest this "extra" money and make a return higher than the rate of interest on your loan, then it would be advisable to pay only the minimum and make those investments. The fact remains that the vast majority of us are not that savvy or it's simply impossible to make more than the exuberant APR they're hitting you with.

So as I said, just pay off your debts as quickly as you can so that you pay as little in interest as possible. Once your debt/income ratio is lowered, that credit score will take off.


@firebirdude: The first part is incorrect. The largest part of your credit score is your history in making timely payments. The longer the better.

@omeframs: Making additional principal payments does absolutely nothing to help your credit score as it's not factored into the model. The history component only cares if made the payments on time, if you're late, how late - 30, 60, 90?

I do agree with firebirdude's other point. I wouldn't maintain a debt at whatever percent just to keep my credit score up as you're giving up money to the auto financing company. But to clarify, the credit score doesn't take debt-income ratio but debt utilization. The model won't know how much money you make but it will know how much your total credit limits are and how much you've used.

Here's the breakdown of your credit score:
35% - payment history
30% - debt amount
15% - length of credit history
10% - new credit
10% - diversity of credit


@first2summit: You still have it wrong. Paying off a loan early doesn't hurt your credit scoring at all, unless that is your single, one-and-only credit entry. The "length of credit" refers to your overall, life-long credit history.

However, "paying as agreed" is indeed the most important part of one's credit rating. When I was writing auto loans for my credit union, I absolutely hated to tell a member we'd had to decline their loan request because they had several delinquent payments in their history. One or two or even three one-month delinquencies we'd often be able to overlook if there was a good reason (moved to a new state and mail got lost?), but for most lenders it's a terribly high hurdle to overcome.


Zigging a little off the exact question you asked, if your car isn't financed at a credit union, have you considered checking with local credit unions to see if you can refinance at a lower rate? Won't hurt your credit rating at all if they refinance for you, and depending on the terms of your original loan you may end up saving a bundle in interest, which you can then plow right back into your monthly over-payments.


My favorite tool for these types of questions is - they have sections where you can input these changes and calculate how it will affect your score.


Thank you all for this great information --- it is much appreciated! I will start playing around with and see how much I can improve my score!


The article here has some info about the drivers behind credit scores:

As already stated, making those timely payments is important. Depending on your feelings about finances, if you're debt averse or if the car loan has a high interest rate, you could consider paying off that loan early. Alternatively, you could keep your payments closer to the minimum, but then consider what else you could do with those funds, whether towards your 401K or other retirement plan, emergency savings, etc.