I will reprint a section of the Share Secure Loan thread. It's from the "theory" section. It explains how there are two big categories that installment debt affects. One is Credit Mix (do you have an open installment loan?) and the other is Amounts Owed (how much of your open debt is paid off?).
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If you have no real idea how FICO scoring works, you need to first develop a big picture understanding of that. Specifically you need to understand what the five scoring groups are, and what their relative weights are. You can get that here:
http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx
Be sure you have reviewed that and understand it before reading further.
Why does the SS Loan Technique work?
Let's start by remembering that, first and foremost, it helps people who have no installment loans on their reports -- not even a closed one. It also helps (though not as much) people who do have a closed installment loan, but who have no open loans.
To see the technique in action, let's assume you have no installment loans of any kind (closed or open) on your reports.
One of the five scoring groups is Credit Mix. It counts for 10% of your score. If all of your accounts are of one type (all credit cards, for example) then you get a very low number of points from this category. To get a high number of points, you want to show that you can manage a MIX of credit types. Overwhelmingly what FICO will look for first is whether you can manage both revolving credit (typically credit cards) and installment loans.
To make this really simple, almost everybody here has at least one credit card. So the bottom line is, if you want to get a lot more points from this category, you need at least one installment loan.
Furthermore, there is some evidence that, even just in the Mix category, some FICO models weigh open loans more heavily than closed loans. So the fact that the technique adds an OPEN installment loan is additional bonus.
Credit Mix (10%) is not, however, the only category that benefits. There is a factor in the much larger Amounts Owed category (30%) which also benefits. And that is something that we'll call "installment utilization" -- for a lack of a better phrase. It is a lot like credit card utilization, but it applies solely to installment debt, rather than revolving debt.
That factor measures how much of your existing open installment debt you have paid off. Here's how that factor works. You take all your current open installment loans (only the open ones -- ignoring all closed loans). You then add up all the amount you currently owe. Call that CURRENT. Then you add up the amounts that the loans were originally for. Call that ORIGINAL. Then you divide CURRENT by ORIGINAL and you get a percent. (Do you see how that is a lot like the credit card utilization calculation?) When that % is close to 100, or if you don't have any open loans at all, then you get no FICO points from this factor. But when the % is very low (say 1-9%) then you get most or all of the points from this factor.
Total installment utilization is just one factor from this big scoring category. Credit card utilization is in the category too and is more important. But still, because the category (Amounts Owed) is so much bigger than Credit Mix, installment utilization ends up giving you a lot of points, when using the SS Loan technique, in addition to the points you get from Mix. It's one reason that the technique can have a significant impact on your score -- you get help in two different areas.
In summary:
The SS Loan technique, when used by a person with no open installment loans, gives you benefit from two different scoring categories: Credit Mix and Amounts Owed.