Paying Off Debt and Credit Score

[questions]

I'm working on building credit.

Here's my situation. I waited until after college and having a job for 6 months to get my first credit card. I got the card through my bank and pay it off in full each month (with the payments automatically deducted from my savings - hence the advantage of using your bank). By having an autopay set up with your bank, you'll NEVER be late, and you'll treat it like a debit card (only spending what you can afford to pay) while building credit. This works well for me.

18 months later, I decided to buy a new car. My credit score was over 750! I have had just ONE credit card, but pay off in full each month. I'm happy I didn't get a store card like most people were suggesting, because I don't need it, and it has gotten everyone else I know in trouble. I got a great deal on a car loan and also ended up putting down 40% on the car (cash plus trade in), so that my loan isn't more than the value of the car at any point.

I do have one question regarding my car loan. I have been told that in order to continue building credit, I should keep the loan for at least 2 years. It's a 48 month loan, though I have decided to pay it off quickly to cut my interest in half.

What is better for my credit? 1) Paying it off in 2 years as is suggested by others? or.... 2) Paying it off as quickly as possible? (i.e. around 18 months)

Can you help me quantify the difference in terms of my credit score? I already know that paying it off sooner reduces my interest payments.

Thanks in advance!

[Ima saver]

You have a great credit score now, I doubt how long you make payments would affect your credit score that much. I say pay it off as soon as possible.Save on all that interest.!

[MarianneJ]

I agree with Ima. I think the most important thing is that your report now shows you as having 2 different types of loans (revolving and installment), and that they are both being "paid as agreed" with no late payments.

Here is a great brochure that MyFico puts out describing exactly how your credit score is calculated:
http://www.myfico.com/Downloads/File...FS_Booklet.pdf

Sounds like you are doing a great job with your finances. Keep up the good work! Hope this helps!

[autoxer]

I agree, the point of having a great credit score is to reduce your interest costs. Don't pay extra in interest to increase your credit score.

[poundwise]

Originally Posted by autoxer

Don't pay extra in interest to increase your credit score.

This is an absolutely brilliant point that many credit score obsessed people completely miss.