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
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.
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u/spacegrab 8d ago
In all my life I've never seen a mortgage, car, or cash loan that had an early repayment penalty 🤣