A Signature loan to improve my credit score......

[TheConductor]

Yes, Amex = American Express and they're not just for the rich and famous.  They certainly do position themselves as the "luxury" option of the major credit card networks/lenders, but they have a wide variety of options from the Centurion Card (definitely for the rich and famous) to the Blue Cash Preferred (superb gas and groceries card for the average citizen) to the Platinum Charge Card (travel perks and privileges for the frequent business traveler).

Search the forums for "Amex 3x CLI" and you'll see why they are a popular option for credit building. 

[TeeGee]

Thank you for the search criteria - I read the definitive guide to Amex 3x CLI and really couldn't believe it - who knew?  

One sentence jumped out at me: They are also typically one of more generous companies with respect to credit limits outside of the credit unions.

I do belong to a credit union - they financied my car loan (paid off now) and I still keep a little money in there.  Is there a benefit to applying for one of their credit cards before amex?  It sounded like it by the way that one sentence reads. My history with that bank dated back 14 years but no credit with them until 05.

Anyway, I did ask Cap1 for a CLI, got a no, then emailed the CEO and go the increase I requested.  Add another 1K to my total unsecured credit (almost paid off) and only a soft pull - yay!

Anyone have any experience with their credit union vs. Amex??

[user5387]

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@TeeGee wrote:

Thank you for the search criteria - I read the definitive guide to Amex 3x CLI and really couldn't believe it - who knew?  

One sentence jumped out at me: They are also typically one of more generous companies with respect to credit limits outside of the credit unions.

I do belong to a credit union - they financied my car loan (paid off now) and I still keep a little money in there.  Is there a benefit to applying for one of their credit cards before amex?  It sounded like it by the way that one sentence reads. My history with that bank dated back 14 years but no credit with them until 05.

Anyway, I did ask Cap1 for a CLI, got a no, then emailed the CEO and go the increase I requested.  Add another 1K to my total unsecured credit (almost paid off) and only a soft pull - yay!

Anyone have any experience with their credit union vs. Amex??

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CUs tend to have higher CLs, lower APRs, and often have no fees for balance transfers and cash advances.

CU cards are very good for "financing" tasks, for example carrying a balance or taking out an emergency loan.

APRs often tend to be one-half of regular cards, for example 6.99% on the SDFCU Visa, or 9.9% on the PSECU Visa.

I'd certainly recommend adding one or two to your portfolio.

[TheConductor]

^^ All of the above is spot-on for the advantages of CUs.  Also, the CU will tend to give a higher initial CL than Amex for the same credit profile.

However, Amex has its advantages as well:

• Predictable CLI schedule and generous CLI ratio - it won't take long to match or exceed the starting CL the CU would give you
• Backdating - this can be great for your credit scores in the long term. Once you have one Amex, all future Amexes are reported as if the account was opened in that year. This really helps your AAoA (average age of accounts) component of the FICO score
• Top-notch rewards programs - the best Amex cards offer rewards the CU cards can't match

I recommend doing a one-day mini-spree once you have your existing debt paid off (and reporting to the credit bureaus - check first!), and go for both.  The CU card could give you a generous starting CLI that would immediately improve your utilization and an APR that makes any future debt you accumulate less costly, while the Amex would enable you to further grow your available credit with the 3x CLIs and establish a 2014 date for all of your future Amex cards. The two options are very complementary.

[Ubuntu]

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@TheConductor wrote:

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@TeeGee wrote:

I have enough in savings to pay off my cards now, but I really don't want to take out that much.  

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Why not?  Even if you reduce your 19% APR on the cards to the lower 7.5% APR of the signature loan, you are still paying for the privilege of being lended money you already have.

Your savings are earning 1%-ish at best, probably less. The spread between that rate and the APR on your debt is costing you money as long as you don't zero your debt.

It's admirable to want to maintain a savings safety net, and it's something I recommend everyone should do. But until you zero your debt and have your credit in a place where you can PIF every month, the savings is an illusion. You are just slowly hemorrhaging that money you "saved" in the bank over time, as interest payments cause your everyday lifestyle to cost more than it needs to.

A lifeboat with a hole in the hull is no real lifeboat.

It's also a red flag that you want to borrow more than the sum total of your current debt. You are so close to debt zero - why on earth would you take on more? Even if you put that money right into savings, you are spending 6.5% APR just for a hoped-for credit score improvement, an improvement which you yourself admit you have no immediate need for. That's over $300 spent on something you don't need. Does that seem like a smart purchase?

For the short term let your credit cards be your safety net. Take the money out of savings and pay all your debts to zero.  Then start devoting the money you would have been paying monthly for that signature loan to making deposits into savings. Now your savings are actually worth something, and it should not take you long to save back up to the $1600 you spent to pay off your debt.

Meanwhile, since utilization appears to be your biggest and most easily-addressed problem, once you have zeroed your debt apply smartly and judiciously for a couple of credit cards known to give generous CLIs (GECRB, Amex - I'd go Amex for the added benefit of backdating to your future credit growth).  

Even though you don't need more cards, the increase in available credit will help your utilization immensely. I got a sizable boost in FICO when I applied for the Chase Sapphire Preferred and two Amexes back in August of last year - at the time my total available credit was close to yours, and by adding an extra 27k of credit line while keeping my spending levels the same I was able to get a nice boost in FICO score. Your current scores are significantly better than mine were at the time, so I think you would be a solid candidate for whatever Amex you want.

Above all, get out of the cycle of revolving your debt...it's the first step to building actual wealth. 

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This really is a great answer. I've been struggling with myself over the last 6 months debating whether or not to get some sort of secured loan to improve my scores.  I too have known in both heart and mind that in the long run paying the interst on the loan even if it's only a few hundred dollars is a bad call just for adding an installment loan in hopes of a credit score increase.

Each time I've gone through this I've decided either not to do it or to put it off but it still sneaks into my mind quite frequently. Now that I've found out about Amex backdating the installment loan doesn't call to me like it used to.

I wish I'd read your answer months ago to have helped keep that out of my mind. I really wish I'd read it 15 years ago when it could have benefited me most.  As you've mentioned in addition to comments from people like Warren Buffet it's all about building wealth. Save your money, use debt responsibly when you need to use it, invest for the long term, and most of all be patient. It's not exciting and you won't get rich overnight but you will benefit greatly from it down the road.

[Ubuntu]

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@TeeGee wrote:

Thank you!  One question... (hopefully not a dumb one) but is "Amex" American Express?  I always thought those were for the rich and famous, lol.

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No, you're thinking of Grey Poupon!

I don't know if OT outside links are frowned upon here but this is the full version of the classic Grey Poupon commercial. Timeless!

[jamie123]

An installment loan counts as ten percent of your score is not trivial!

Let's do the math. Now I know someone is going to say "But FICO starts at 350!" so we will do it both ways.

850 X .10 = 85 points

850 - 350 = 500 X .10 = 50 points

So even if we are conservative you are leaving 50 points on the table if you don't have an installment loan on your reports.

Now I also understand that you or I may not see ALL 50 points by getting an installment loan but I would be more than happy with a 20 to 25 point bump!

It is really easy to get an installment loan and there are three good credit unions to get a shared loan from and they are:

Alliant Credit Union

State Department Federal Credit Union (SDFCU)

Digital Credit Union (DCU)

A shared loan is like a secured credit card in that your deposit in your savings account acts as collateral for the loan. As the loan gets paid down the collateral frees up.

I am currently in the process of opening one with Alliant. To become a qualified person that is able to join, I first had to make a $10 donation to a charity that is listed on their website. I was then able to join and open a savings account. I then funded that account with a $500 electronic deposit from my bank. This took all of 1 hour to do.

I am now waiting for the funds to clear and become available so that I can take out a 5 year loan @ 3.7% yearly interest rate for $500. (4 year and under loans are only 2.7% interest) They send me my $500 back as the loan! I'm not out anything really!

Once I have the loan in place I will set up recurring electronic payments to pay the loan once a month for 60 payments and I can forget about it. For the next 5 years it will take care of itself while adding points to my score. (The payments will only be somewhere in the $7 to $8 range.)

Then I will take the same $500 and open an account and get a loan with SDFCU.

I will then have two 5 year installment loans and it really didn't cost me anything.

P.S. I learned how to do this from Revelate! Awesome advice!

[Ubuntu]

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@jamie123 wrote:

An installment loan counts as ten percent of your score is not trivial!

Let's do the math. Now I know someone is going to say "But FICO starts at 350!" so we will do it both ways.

850 X .10 = 85 points

850 - 350 = 500 X .10 = 50 points

So even if we are conservative you are leaving 50 points on the table if you don't have an installment loan on your reports.

Now I also understand that you or I may not see ALL 50 points by getting an installment loan but I would be more than happy with a 20 to 25 point bump!

It is really easy to get an installment loan and there are three good credit unions to get a shared loan from and they are:

Alliant Credit Union

State Department Federal Credit Union (SDFCU)

Digital Credit Union (DCU)

A shared loan is like a secured credit card in that your deposit in your savings account acts as collateral for the loan. As the loan gets paid down the collateral frees up.

I am currently in the process of opening one with Alliant. To become a qualified person that is able to join, I first had to make a $10 donation to a charity that is listed on their website. I was then able to join and open a savings account. I then funded that account with a $500 electronic deposit from my bank. This took all of 1 hour to do.

@I am now waiting for the funds to clear and become available so that I can take out a 5 year loan @ 3.7% yearly interest rate for $500. (4 year and under loans are only 2.7% interest) They send me my $500 back as the loan! I'm not out anything really!

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A couple things...

1st: Dammit! Now you have me wanting an installment loan again!

2nd: I've heard good things about SDFCU but had no idea you could get a loan for as little as $500 which is good to know, thanks. The places I looked at locally all had minimums of several thousand but I didn't look very hard. According to my quick calculations you'll only pay $48.44 in interest.

3rd: I can't argue with your maths that 10% should equal around 50 points (or potentially as many as 85) but I can say from experience that in reality the 10% isn't exact and an installment loan isn't worth nearly that much. I've been as high as 814 at TU and 805 at EQ. Those were both FICO scores from myFICO which based on the consensus around here were a TU 98 and a BEACON 5.0 respectively but I'm not sure about that. I've never had a mortgage or auto loan although I have had installment loans in the past. They've been paid off for over ten years and off my reports for quite a few so I'm certain they aren't being considered now.

On my most recent TU report it said "there are no actionable negative factors present with your score."  My last Experian FAKO said the only "factors lowering my PLUS score" was specifically not having a mortgage loan which lenders particularly like.

It's generally stated that the 10% is "Types of credit used" or something similar. Perhaps in the mysterious ways of the CRAs using one "type of credit" is worth up to 14 or even more points?

[Revelate]

10% isn't 10% of 850; buckets and various other things influence how much you actually gain.  I did get a bunch of points when I put my first installment lines on my credit report, but I was building out of a thin file anyway.

That said, given how cheap a secured installment line is from Alliant or SDFCU I just can't comprehend anyone who doesn't consider that cost trivial expecially when amortized over 4 years (5 years is a little higher APR in Alliant's case, not certain on SDFCU), but the 4 year one at 2% on $500 pencils out to $20.68 in interest paid.  I'm effectively unemployed at the moment and I just spent more than double that for dinner treating someone *yawn*.

[user5387]

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@jamie123 wrote:

An installment loan counts as ten percent of your score is not trivial!

Let's do the math. Now I know someone is going to say "But FICO starts at 350!" so we will do it both ways.

850 X .10 = 85 points

850 - 350 = 500 X .10 = 50 points

So even if we are conservative you are leaving 50 points on the table if you don't have an installment loan on your reports.

Now I also understand that you or I may not see ALL 50 points by getting an installment loan but I would be more than happy with a 20 to 25 point bump!

It is really easy to get an installment loan and there are three good credit unions to get a shared loan from and they are:

Alliant Credit Union

State Department Federal Credit Union (SDFCU)

Digital Credit Union (DCU)

A shared loan is like a secured credit card in that your deposit in your savings account acts as collateral for the loan. As the loan gets paid down the collateral frees up.

I am currently in the process of opening one with Alliant. To become a qualified person that is able to join, I first had to make a $10 donation to a charity that is listed on their website. I was then able to join and open a savings account. I then funded that account with a $500 electronic deposit from my bank. This took all of 1 hour to do.

@I am now waiting for the funds to clear and become available so that I can take out a 5 year loan @ 3.7% yearly interest rate for $500. (4 year and under loans are only 2.7% interest) They send me my $500 back as the loan! I'm not out anything really!

Once I have the loan in place I will set up recurring electronic payments to pay the loan once a month for 60 payments and I can forget about it. For the next 5 years it will take care of itself while adding points to my score. (The payments will only be somewhere in the $7 to $8 range.)

Then I will take the same $500 and open an account and get a loan with SDFCU.

I will then have two 5 year installment loans and it really didn't cost me anything.

P.S. I learned how to do this from Revelate! Awesome advice!

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The 10% refers to a FICO category (mix of credit types), not to an installment loan.

People can have scores like 825 without any installment loans showing on their reports.