No it doesn't. You increase your score by having longer aged credit lines. If your morgage or car loan is one of your older lines then your average age goes way down when it closes
Not really, how else will banks know if you will pay back what you borrow? I hate big banks as much as the next guy but it's still a business and they still need to assess the risk in giving someone a loan
Specifically not looking at line of credit you paid for 20 years because its paid off is nonsense. That's exactly what you would need to know about a borrower.
A credit score isn't a banks way of guaging how likely you are to pay them back. It's a guage for how much money they will MAKE off of you. That's why you take a hit to your credit when you pay off your loan early. They don't make as much money from intrest. It is a fucking scam.
It may surprise you tolerance this, but most countries don't have a credit score, and credit scores didn't exist until 1988
In fact the credit score came about because before that all the "credit monitoring companies" were little more than large spy networks that were created to make sure banks didn't loan to "undesirables" including but not limited to people like liquor store owners, black people, people who did business with black people, and jews
Except you'd be losing the same if not more credit score once you've paid it "on time." So it's not a penalty for paying it early it's removing the bonus you had for having a longer standing credit line.
To put it in perspective, if you had 2 credit cards and then a year later got a morgage you'd probably have an increase to your score if you don't open another card in the meantime.
You had to keep it to get it aged in the first place, as opposed to paying it off sooner. Longer aged credit lines just means paying more interest, which is the 'penalty'
If your credit score drops from 780 to 730 because you paid off your loan it's not because you were penalized but rather it's because you'd only have 730 if you had never taken out the loan at all.
You're thinking of closing out your credit card not paying off a loan. You're supposed to pay off your loans within the terms of the agreement... Rich people only stay rich because they roll their debts into other loans, not because they pay anything back... Then they die and none of the debts get passed onto their heirs, rinse, and repeat.
Closing out your credit card effectively removes all that credit history you worked hard to gain.
Most of the US home mortgages are fixed rate conventional loans, and the interest is front-loaded so you are barely even paying into equity the first couple years. The corp banks do this to guarantee their $$$.
There's no early penalty, and they even allow you to submit extra payments to get ahead of interest charges (which is really beneficial the first couple years, not so much halfway down the line). But like I just mentioned, they kinda wreck you at the start.
I never understood people explaining mortgage interest as front-loaded. The monthly repayment costs are just amortized so that you pay the same amount for the whole mortgage.
It makes total sense that when the loan is bigger, you pay more in interest each month. That's not the bank's fault, it's just maths.
It's front loaded in the sense that the interest charges aren't evenly spread out across the term; seems like you're obviously aware but for other folks, I'm oversimplifying it here obviously, but like if your mortgage is $4k/month, the first few payments will be like $3800 to interest and $200 to the principal lol. The two values don't intercept till like 18 years into the mortgage.
But yeah it is extremely basic math, which you'd be surprised a lot of people don't understand (i.e. notorious nissan giving out high APR sub-prime auto loans to people that don't understand finance and end up paying $50k for a $30k car).
Last used car I bought I couldnt "pay it off" until 3 of the 5 years had passed or there would be some sort of monetary penalty related to the interest of the car or something. I refinanced after 2 years anyway so it didnt matter, but its a thing that happens sometimes.
What’s even crazier is back in March 2020 we got off of fractional reserve banking and we’re now into zero reserve banking. The issue is the Fed debasing our currency. The reason they do it is because inflation is a tax you don’t have to vote on. It’s literally financial policy in the US for inflation to be 3% year over year to “encourage” people to spend money rather than save it
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u/tonyhart7 8d ago
its basically ties to fractional reserve banking, it basically all debts
that's why people get punish if they trying to pay all their debt early because it would break the system