Will a Lending Club loan help my credit score?

[jasonkm1]

I'm looking to buy a house in 3-4 years and am looking to get my fico as high as possible by then. My scores right now are around 730-760. One of the explanations of what's keeping my score down is this: "Not enough revolving debt experience. A healthy balance of credit and loan accounts is key to achieving a high credit score. It is important to build a record of responsible credit use over time with different types of accounts. Consider opening a new account to strengthen your credit report"

I only have credit cards on my credit reports, i've never taken out any kind of loans. I went onto Lending Club and qualify for a loan but the interest rate is 14%, and I don't really even need a loan. I figure maybe I can just make a small loan, like $2000, to keep the interest I have to pay at a minimum, and just pay it off in the three years. Sure I'll have to pay the interest but I think it may be worth it if it will improve my FICO's before I buy my home. Is this a good idea? Or will the credit reporting companies see this loan as a negative for some reason?

[webhopper]

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@jasonkm1 wrote:

I'm looking to buy a house in 3-4 years and am looking to get my fico as high as possible by then. My scores right now are around 730-760. One of the explanations of what's keeping my score down is this: "Not enough revolving debt experience. A healthy balance of credit and loan accounts is key to achieving a high credit score. It is important to build a record of responsible credit use over time with different types of accounts. Consider opening a new account to strengthen your credit report"

I only have credit cards on my credit reports, i've never taken out any kind of loans. I went onto Lending Club and qualify for a loan but the interest rate is 14%, and I don't really even need a loan. I figure maybe I can just make a small loan, like $2000, to keep the interest I have to pay at a minimum, and just pay it off in the three years. Sure I'll have to pay the interest but I think it may be worth it if it will improve my FICO's before I buy my home. Is this a good idea? Or will the credit reporting companies see this loan as a negative for some reason?

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Quite frankly, a new account will not help your scores... It will make your score drop and decrease your average age of accounts.  What site told you this information?

Maybe they are referencing the age of your current credit cards.  How many cards do you have and when were they opened?  What are your current credit lines?

What tradelines do you have on your report, including loans, credit cards, store cards auto loans, student loans??

Also, why are you waiting 3-4 years?  Is there a specific reason for waiting on the house?

[slickshoes182]

If your problem is "Not enough revolving debt experience." then a Lending Club loan will not help. Lending Club offers installment loans.. those are the kind where you pay a fixed amount for a certain period of time. Revolving debt refers to credit lines where you control the charging and payoff (e.g. Credit Cards and Lines of Credit). More revolving accounts, higher limits on revolving accounts, and average age are what improve this factor.

If you do at some point decide to take out an installment loan, in my experience, Credit Unions and some Banks will offer lower APRs than Lending Club, once you take into account Lending Club's origination fees. In my mind, the big advantage of Lending Club is the ease (Lack of paperwork and application hassels) that they fund loans with. Also, you can see their terms upfront with only a softpull of your credit (they will hardpull your account eventually.. either when you agree to the terms and submit your application or the loan is funded.. I forgot which). With Credit Unions and  Banks, its probably more difficult to find out what terms you would get before a hardpull. Sometimes you can get a loan officer to tell you "For this range of FICOs, we are currently offering this rate." 

[jasonkm1]

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@webhopper wrote:

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Quite frankly, a new account will not help your scores... It will make your score drop and decrease your average age of accounts.  What site told you this information?

Maybe they are referencing the age of your current credit cards.  How many cards do you have and when were they opened?  What are your current credit lines?

What tradelines do you have on your report, including loans, credit cards, store cards auto loans, student loans??

Also, why are you waiting 3-4 years?  Is there a specific reason for waiting on the house?

I guess I got confused about "revolving debt experience".  I thought it was a loan or something other than credit cards since I already have several of them. I think you are right, and they are telling me I need to have the accounts age a little. I think the average age is like 4 years. I got this info from a site that I check my scores with.  I'm planning on buying a relatives house but they can't sell it until at least 2016.  Thanks for the repy!

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[jasonkm1]

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@slickshoes182 wrote:

If your problem is "Not enough revolving debt experience." then a Lending Club loan will not help. Lending Club offers installment loans.. those are the kind where you pay a fixed amount for a certain period of time. Revolving debt refers to credit lines where you control the charging and payoff (e.g. Credit Cards and Lines of Credit). More revolving accounts, higher limits on revolving accounts, and average age are what improve this factor.

If you do at some point decide to take out an installment loan, in my experience, Credit Unions and some Banks will offer lower APRs than Lending Club, once you take into account Lending Club's origination fees. In my mind, the big advantage of Lending Club is the ease (Lack of paperwork and application hassels) and speed that they fund loans with. Also, you can see their terms upfront with only a softpull of your credit (they will hardpull your account eventually.. either when you agree to the terms and submit your application or the loan is funded.. I forgot which). With Credit Unions and  Banks, its probably more difficult to find out what terms you would get before a hardpull. Sometimes you can get a loan officer to tell you "For this range of FICOs, we are currently offering this rate." 

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Thank you for this info. Yes the Lending Club was pretty easy, although I only did their pre-approval thing. Since I found out this is not a "revolving debt" account I won't go through with it.

[webhopper]

I guess I got confused about "revolving debt experience".  I thought it was a loan or something other than credit cards since I already have several of them. I think you are right, and they are telling me I need to have the accounts age a little. I think the average age is like 4 years. I got this info from a site that I check my scores with.  I'm planning on buying a relatives house but they can't sell it until at least 2016.  Thanks for the repy!

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Oh I see, that's a great reason to wait! 

Your scores will be just fine   I think you need between 2-4 major Credit Cards, maybe 1 store card such as wal mart or lowes, and one loan such as secured loan or auto loan.  If you wanted to build a loan tradeline, the secured loan is the best way to go, because the interest is crazy low, and you'll have an actual asset (usually a Certificate of Deposit) when you're done, which will help you in the mortgage process with showing seasoned funds.

Mostly I think that that you should just wait and let your credit card accounts age.  Depending on the type of account, and the credit issuer... you may be able to get your credit limit raised.

[webhopper]

And to re-iterate my earlier post, you only need 3 active tradelines to quality for a mortgage using traditional credit scores...

Your scores are higher than mine were when I bought my first home with a 621 score in 2008 and my second home with a 681 in 2012... so please dont stress

As long as you have three tradelines you'll be fine. No need to go with Lending Club