Paying off an installment loan can have a temporary negative impact on your credit score. Open and active accounts with good payment history benefit your credit.
When you pay off an installment loan and the account is closed, it decreases your credit accounts which can temporarily lower your score.
How Can an Installment Loan Build Credit?
An installment loan can help your credit score if you are consistent in payment. When you pay your installment loans on time, your lender can file a report to any of the credit bureaus, which will positively reflect on your credit. A history of timely payment has a good impact on one's credit.
How Can an Installment Loan Hurt Credit?
An installment loan can hurt your credit if you are inconsistent with payment. If you consistently miss payments, your lender can file a report to the credit bureaus, which negatively impacts your credit. Also, applying for credit appears as a "credit inquiry" on your report; whether approved or not, it affects your credit score.
Conclusion
An installment loan can impact your credit score negatively or positively, depending on how you handle it. To utilize an installment loan in building your credit, you must work with lenient lenders who can give you grace on missed payments and also report your payment progress to the credit bureaus.