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I need an installment loan...

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jamie123
Valued Contributor

Re: I need an installment loan...


@Anonymous wrote:

@leegreen wrote:

 


Your AAoA could be easily handled with CC's Amex or other aging cards. Because of the constant "thickening" of the credit file the new account dings would be less and less as time went on. Hopefully these would be a stop gap until the purchase of a house anyway where the credit mix improves anyways. Smiley Happy


 

A solid mortgage improves many things, no question.  However, FICO points wise, the little secured loan could do better, although for a much shorter term.

 

Let's clarify for those who don't understand this friendly "dispute."  One side, which is not me, believes that the secured loan maximizes you points starting at the 9th month, and they plan to over-extend that good effect by getting a 2, 3, 4 year loan.

 

I, on the other side, think that is an optimistic understanding of the data.  I think the best effect of the loan starts at the 8th or 9th month, but not because it's the 8th month; but,  because it's the ENDING THIRD of a ONE YEAR loan, and that is why the points just go up.  So if you apply that to the two year loan, you would see the max points in about a year and a half, some of us would like it way sooner than that.

 

You guys are viewing data for the effects of a one year loan and attributing point results to a special month and not to the percentage of the loan that remains, that's a mistake, I THINK.  Smiley Sad

 


I agree, this is a friendly dispute and discussion is good and sometimes brings to light things that we wouldn't be able to find on our own. I mean, look at how many different ways we are experimenting with to solve this issue! That is great! It would take a couple of lifetimes for one of us to try all these options on his own.

 

One thing that worries me about your 1 year installment loan is that we haven't heard that it works. If just getting a 1 year installment loan boosted your score by a significant amount, I'm pretty sure we would have heard about it on these forums already. FICO uses some really sophisticated algorithms and I would be really surprised if a 1 year and 4 year loan were treated the same way. I mean even I think there is a big difference between someone making 4 years of payments on time versus someone making 1 year of payments on time and I'm not that smart! Smiley Indifferent


Starting Score: EQ 653 6/21/12
Current Score: EQ 817 3/10/20 - EX 820 3/13/20 - TU 825 3/03/20
Message 21 of 29
Anonymous
Not applicable

Re: I need an installment loan...


@jamie123 wrote:

 FICO uses some really sophisticated algorithms and I would be really surprised if a 1 year and 4 year loan were treated the same way. I mean even I think there is a big difference between someone making 4 years of payments on time versus someone making 1 year of payments on time and I'm not that smart! Smiley Indifferent


 

These are the same "sophisticated algorithms" that evaluate and weight a $300 CL account exactly the same way they do a $30,000 CL account, and we both know, in the real world, managing well such different accounts is a completely different experience, because these are two different animals.  Not for FICO...

 

Message 22 of 29
leegreen
Frequent Contributor

Re: I need an installment loan...


@Anonymous wrote:

@jamie123 wrote:

 FICO uses some really sophisticated algorithms and I would be really surprised if a 1 year and 4 year loan were treated the same way. I mean even I think there is a big difference between someone making 4 years of payments on time versus someone making 1 year of payments on time and I'm not that smart! Smiley Indifferent


 

These are the same "sophisticated algorithms" that evaluate and weight a $300 CL account exactly the same way they do a $30,000 CL account, and we both know, in the real world, managing well such different accounts is a completely different experience, because these are two different animals.  Not for FICO...

 


LOL, but then it would be slanted towards "rich" people with the income to have a 30k CL... I think that FICO has to evaluate based on percentages due to political regulation. That is why a $500 secured loan is equivilant to a 50k auto secured loan...wholly different beast but both "secured"

 

I am basing my recommendation of two secured loans to start, one at one year and one at four followed by a new 4 year loan every time you only have one and it is at the two year mark on a few assumptions. If any of my assumptions are wrong please tell me!

 

1. A credit file needs an active installment loan at all times for a good score. 

2. The installment loan give the best value when approximately 37% or more of the principal is paid off.

3. The "score drop" associated with paing off a loan only really hurts if it is your ONLY loan.

4. Due to AAoA effects and new account effects it is best to minimize new loans.

 

So my thought process goes like this:

 

If one has no installment loans the best thing to do is get a cheap $500 savings secured loan at a CU known to not pull credit for these. The first loan you get should be a one year. If you have the "loan proceeds" deposited back into the same savings account the account will now have $1000 with $500 available. Then open a second $500 loan, this one with a 4 year term. 

 

The first loan take 5 months to get to the 37% threshold. After this point you have gained most of the benifit. The loan costs 8.16 in interest assuming a 3% APR, which is common on this size loan.

 

The second loan takes 19 months to cross the 37% threshold. This loan costs $31.22 in interest assuming the same APR. 

 

If you want to make all of the payments without any additional money this will cost $500+$8.16+($11.07*12)=$641(At the end 601.62 will remain.)

 

I also agree that a lively "discussion" is the best way to come up with an answer. This is interesting but purely academic for me because I have a mortgage, auto loan, and student loans so I will not need to add a loan for the credit mix for 28 years...

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Message 23 of 29
jamie123
Valued Contributor

Re: I need an installment loan...

 leegreen wrote:

 

I am basing my recommendation of two secured loans to start, one at one year and one at four followed by a new 4 year loan every time you only have one and it is at the two year mark on a few assumptions. If any of my assumptions are wrong please tell me!

 

1. A credit file needs an active installment loan at all times for a good score.

Yes, I wholeheartily agree with this statement.

 

2. The installment loan give the best value when approximately 37% or more of the principal is paid off.

It sounds good to me but we just don't know if this is true or not.

 

3. The "score drop" associated with paing off a loan only really hurts if it is your ONLY loan.

Yes, closing your last loan will drop your score the most. You may see a small drop if other loans are closed but it would be minor.

 

4. Due to AAoA effects and new account effects it is best to minimize new loans.

Yes, I agree with this statement.

 

So my thought process goes like this:

If one has no installment loans the best thing to do is get a cheap $500 savings secured loan at a CU known to not pull credit for these. The first loan you get should be a one year. If you have the "loan proceeds" deposited back into the same savings account the account will now have $1000 with $500 available. Then open a second $500 loan, this one with a 4 year term. 

The first loan take 5 months to get to the 37% threshold. After this point you have gained most of the benifit. The loan costs 8.16 in interest assuming a 3% APR, which is common on this size loan.

The second loan takes 19 months to cross the 37% threshold. This loan costs $31.22 in interest assuming the same APR. 

If you want to make all of the payments without any additional money this will cost $500+$8.16+($11.07*12)=$641(At the end 601.62 will remain.)

A $500 loan with a four year term will have payments of about $11 per month. Total interest paid in 4 years is about $31.

 

I also agree that a lively "discussion" is the best way to come up with an answer. This is interesting but purely academic for me because I have a mortgage, auto loan, and student loans so I will not need to add a loan for the credit mix for 28 years... Rub it in why don'tcha! But if you look on the bright side...You also have mortgage, auto loan and student loan payments!Smiley Wink


 


Starting Score: EQ 653 6/21/12
Current Score: EQ 817 3/10/20 - EX 820 3/13/20 - TU 825 3/03/20
Message 24 of 29
Anonymous
Not applicable

Re: I need an installment loan...


@leegreen wrote:

I am basing my recommendation of two secured loans to start, one at one year and one at four followed by a new 4 year loan every time you only have one and it is at the two year mark on a few assumptions. If any of my assumptions are wrong please tell me!

 

1. A credit file needs an active installment loan at all times for a good score. 

2. The installment loan give the best value when approximately 37% or more of the principal is paid off.

3. The "score drop" associated with paing off a loan only really hurts if it is your ONLY loan.

4. Due to AAoA effects and new account effects it is best to minimize new loans.

 

...

 

This is interesting but purely academic for me because I have a mortgage, auto loan, and student loans so I will not need to add a loan for the credit mix for 28 years...


 

Point 1, YES!

 

Point 2.  This "37%" comes from where?!?  I do agree that during the first third of the loan you get the lowest gains of the whole loan.  Probably 5 to 6 points, total.  Then, it picks up in the second third of the loan (double whatever points you got on the first, 10 to 12 points), then in the third you get the equivalent of points you got on the first 66% of the loan (15 to 18 points),  For a total gain of 30-36 points.

 

Point 3.  I think it will hurt anyway, but much so if it's your only loan.

 

Point 4.  TRUE, but it might be the only way to maximize loan-points, so you would have to evaluate the trade-off.

 

According to my theory, and my belief, you are not maximizing your loan-points with your mortgage, auto loan or student loans unless they are in the latter stages of their existence, so there! Smiley Wink

 

Message 25 of 29
jamie123
Valued Contributor

Re: I need an installment loan...

Okay, I'm back with an update.

 

My EQ score went up 7 points today and the reason given by the MyFICO alert was:

 

Your FICO score has increased from 683 to 690

Based on Equifax data

 

What is, "Based on Equifax data" supposed to mean?

 

I have been paying down my UTI but I don't think EQ has picked up any of my payments yet. They are showing me at 23% UTI and 5 credit accounts with balances. This will be paid down to less than 10% within the next few days and I will be at 1 card reporting about 5% and all the rest at $0.

 

I think that the points boost might be attributted to my Alliant $500 installment loan. I made my 3rd payment on September 1st and it seems that it takes EQ 3 or 4 days to pick up that information.

 

What do you guys think?


Starting Score: EQ 653 6/21/12
Current Score: EQ 817 3/10/20 - EX 820 3/13/20 - TU 825 3/03/20
Message 26 of 29
jamie123
Valued Contributor

Re: I need an installment loan...

And another update...

 

EQ picked up a CC payment that lowered the UTI on one of my cards to about 5% of it's CL.

 

My EQ score went up 6 points from 690 to 696!

 

I'm still at about 13% UTI overall with one card being paid to $0 tomorrow so I should have my credit groomed as best as I can to achieve the highest score I can possibly get at the moment. I'll have 1 CC reporting about 5% of its' CL and all the rest $0.


Starting Score: EQ 653 6/21/12
Current Score: EQ 817 3/10/20 - EX 820 3/13/20 - TU 825 3/03/20
Message 27 of 29
Ubuntu
Regular Contributor

Re: I need an installment loan...


@leegreen wrote:

1. A credit file needs an active installment loan at all times for a good score.

 


I'm going to have to be a heretic and disagree with point #1.

 

I agree with it if we're talking Auto-Enhanced or Mortgage FICOs but not for Classic. As of today my EQ FICO 08 score is 831 and I have nothing but credit cards. I haven't traveled the typical path in credit life but then I'm guessing not many of us have :-) I'm the primary on two 1 year old Chase cards and two 20 year old Amex cards (backdated) for an AAoA of 10 years. I'm also an AU on two other cards with relatively long histories but they don't factor into the AAoA on my big three reports. Strangely they do on UTI though.

 

My score, which I just got today when my backdated Amex cards reported for the first time, pretty much discredits FI's pie chart suggesting that 10% of your score is based on "Types of credit used". The Amex and Chase cards do report differently in the "Industry" field, Amex as "All Banks" and Chase as "National Bank Card Cos.", so it's possible I'm getting some point benefit for "Types of credit used".

 

I don't doubt that my Auto-Enhanced score is lower, possibly quite a bit lower, but I think that a long credit history with no missed payments is by far the biggest indicator of low risk and is more important than having an active installment loan or loans.  I'm also guessing the bucketing system plays a pretty big role in how much these things affect each individual's score.

 

On most of my previous reports in the "What's hurting your FICO score" it said something like "You have no recent activity from a non-mortgage installment loan." On today's report that section says "Because your FICO score is exceptionally high, there are no actionable negative factors present with your score" so I think it's possible that I moved into a bucket where the lack of an installment loan isn't a factor.

 

I'm now torn between holding my breath so my score doesn't go down and getting one or two of these loans myself in case I ever need a mortgage or car loan.  I like the plan of getting a 1 year loan and a 4 year loan for maximum benefit but I don't really want two new accounts bringing down my AAoA so I may go with one 4 year and see what happens to my score. Maybe by the 4 year mark I'll have a mortgage or auto loan that ends the need for more MILs ®.  New acronym for Manufactured Installment Loan. LOL

Message 28 of 29
jamie123
Valued Contributor

Re: I need an installment loan...


@Ubuntu wrote:

@leegreen wrote:

1. A credit file needs an active installment loan at all times for a good score.

 


I'm going to have to be a heretic and disagree with point #1.

 

I agree with it if we're talking Auto-Enhanced or Mortgage FICOs but not for Classic. As of today my EQ FICO 08 score is 831 and I have nothing but credit cards. I haven't traveled the typical path in credit life but then I'm guessing not many of us have :-) I'm the primary on two 1 year old Chase cards and two 20 year old Amex cards (backdated) for an AAoA of 10 years. I'm also an AU on two other cards with relatively long histories but they don't factor into the AAoA on my big three reports. Strangely they do on UTI though.

 

My score, which I just got today when my backdated Amex cards reported for the first time, pretty much discredits FI's pie chart suggesting that 10% of your score is based on "Types of credit used". The Amex and Chase cards do report differently in the "Industry" field, Amex as "All Banks" and Chase as "National Bank Card Cos.", so it's possible I'm getting some point benefit for "Types of credit used".

 

I don't doubt that my Auto-Enhanced score is lower, possibly quite a bit lower, but I think that a long credit history with no missed payments is by far the biggest indicator of low risk and is more important than having an active installment loan or loans.  I'm also guessing the bucketing system plays a pretty big role in how much these things affect each individual's score.

 

On most of my previous reports in the "What's hurting your FICO score" it said something like "You have no recent activity from a non-mortgage installment loan." On today's report that section says "Because your FICO score is exceptionally high, there are no actionable negative factors present with your score" so I think it's possible that I moved into a bucket where the lack of an installment loan isn't a factor.

 

I'm now torn between holding my breath so my score doesn't go down and getting one or two of these loans myself in case I ever need a mortgage or car loan.  I like the plan of getting a 1 year loan and a 4 year loan for maximum benefit but I don't really want two new accounts bringing down my AAoA so I may go with one 4 year and see what happens to my score. Maybe by the 4 year mark I'll have a mortgage or auto loan that ends the need for more MILs ®.  New acronym for Manufactured Installment Loan. LOL


I agree with you to a point when you say that a long history of good credit is the most important part of a good score but that is like saying the easiest way to become a millionaire in a short period of time is to start with $995,000.00 in your savings account and then get a job that pays you 10K a month.

 

People on these forums are trying to actively manage their credit into not just a credit card enhanced high score but more importantly high scores in those "other" scoring models that you so easily discounted like auto and mortgage enhanced scores. We are trying for high scores in all catagories no matter what model a lender chooses to use. In other words we want bulletproof scores that will stand the test of time and use.

 

Once your scores are above 720 it doesn't matter anymore for credit cards. You can get virtually any credit card at that point. Sure you might be able to get lower APR cards but if you carry a high balance where that would actually save you money, your scores will tank.

 

You can however save hundreds or thousands of dollars if your auto and mortgage enhanced scores are over 720 and the higher they are, the more you can save in interest payments.

 

That's why...

 

1. A credit file needs an active installment loan at all times for a good score.


Starting Score: EQ 653 6/21/12
Current Score: EQ 817 3/10/20 - EX 820 3/13/20 - TU 825 3/03/20
Message 29 of 29
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