Paying off installment loans, which have a preset payment schedule, on time will improve your FICO score, according to the Fair Isaac Corporation, creator of the FICO score.
Function
Paying off installment loans on time improves your FICO score because it is included in the payment history in the FICO score calculation. As of 2010, payment history accounts for 35 percent of your credit score.
Benefits
In addition to boosting your FICO score when you make on-time payments, installment loans increase the length of your credit history. How long you have used credit counts for 15 percent of your score in the FICO calculation, according to FinAid.
Tip
To maximize your FICO score, you should have a variety loan types, according to Edmunds. Utilizing different types of credit, such as auto loans and credit cards, counts for 10 percent of your score.
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