CD Secured Loan to Build Installment Loan History?

[Anonymous]

What do you all think about using a CD secured loan for building a history of positive payments on an installment loan?

I'm working on building my credit up (22 years old, didn't have ANY credit history last winter) - Got my first card, a Cap One Secured 7 months ago, a regular Cap One Platinum last month. Today I was approved for a Discover It card, and denied for an Amex BCE. Going to stay in the garden for a while. I'd like to get an Amex BCE and a Chase Freedom or Slate card (personal and business banking is through Chase) in the future. Have to watch the new cards with Chase's 5/24 rule.

Just bought a house with owner financing, so the morgage payments aren't being reported. I'm looking at a 2 year term before I need to apply for a tradional morgage to pay off the previous owner. So I feel like establishing a positive history with installment loans as soon as possible is pretty important. Also why I've been on an app spree - If I time things right, all the HPs should be falling off right around the time I apply for the FHA.

Looked at my options through tradional and online lenders. Got a prequal for a $10k loan through Avant, to be denied for lack of history with installment loans.

My local credit union offers CD secured loans @ 2% above the CD interest rate. I'm thinking I could take some cash from one of my brokerage accounts, put it into a 24 month CD, then take out a 24 month loan against the account. The interest payments would be low, and I could immediately refund the brokerage account.

The other option my parents suggested was an auto loan. The interest through the CU is reasonable, but I've already got 2 trucks and a car paid off. I don't really need another vehicle. 

Also just applied for the FASFA. Been paying for college mostly out of pocket, but taking out student loans would help ease my cash burn, and potentially positively impact my scores.

Any thoughts?

[Anonymous]

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...

I really recommend the above.  Doing the CD loan would work too, but I think if you compared it to the method above you will see it is most likely better. (Unless your bank does a SP, allows a large early payment to reduce util, then allows small payments for the next 4 years.)

[Anonymous]

Great tip! Thanks for the link. Definitely better than my original plan - I wasn't aware that sub 9% was the target utilization.

[Anonymous]

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@Anonymous wrote:

Great tip! Thanks for the link. Definitely better than my original plan - I wasn't aware that sub 9% was the target utilization.

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If you can follow the plan you should see nice results based off the information you provided  in your OP.  Also, note that when you are applying for your mortgage your DTI ratio will be a factor, so a vehicle installment loan could hurt you more than help (Depending on the cost and your income).  With your 3 Credit cards, and your installment loan(if you get it) should be able to carry you nicely into a mortgage.  I would recommend you only apply for more credit cards between now and then if you actually need them.  You can also look into product changing your Platinum MC to a QS for the 1.5% cash back as soon as it is available.  (Check via secure chat with a specialist). 

[RonM21]

Many have success using this method, if it is done properly.

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

Great tip! Thanks for the link. Definitely better than my original plan - I wasn't aware that sub 9% was the target utilization.

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If you can follow the plan you should see nice results based off the information you provided  in your OP.  Also, note that when you are applying for your mortgage your DTI ratio will be a factor, so a vehicle installment loan could hurt you more than help (Depending on the cost and your income).  With your 3 Credit cards, and your installment loan(if you get it) should be able to carry you nicely into a mortgage.  I would recommend you only apply for more credit cards between now and then if you actually need them.  You can also look into product changing your Platinum MC to a QS for the 1.5% cash back as soon as it is available.  (Check via secure chat with a specialist). 

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Applied for an Alliant account last night, got a pending message. I'll try calling 'em if I don't see anything by Friday. They seem like a pretty decent company, affiliated ATMs all over my area. Applied for a checking account, too. I figured I'd do the same with my local CU if I went that route, but their web access is alot less developed than Alliant. Who knows, they may be a decent option when it comes time to get a morgage.

@Any idea what student loans will do to my DTI while I'm still in school? Income is a little south of 40k/year. If I lean on student loans instead of cash for the next couple years I'll probably rack up somewhere around 15k in debt. Amount owned on the house will be at about 120k when it comes time to get a mortgage. Going to pursue the Secured Long loan regardless of potential financial aid loans. My parent's tax situation is a bit odd, and @ 22 I'm tied to them as a dependant, so I might not get anything. I'll hedge my bets by trying to secure an installment loan immediately. 

[Anonymous]

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@Anonymous wrote:

What do you all think about using a CD secured loan for building a history of positive payments on an installment loan?

I'm working on building my credit up (22 years old, didn't have ANY credit history last winter) - Got my first card, a Cap One Secured 7 months ago, a regular Cap One Platinum last month. Today I was approved for a Discover It card, and denied for an Amex BCE. Going to stay in the garden for a while. I'd like to get an Amex BCE and a Chase Freedom or Slate card (personal and business banking is through Chase) in the future. Have to watch the new cards with Chase's 5/24 rule.

Just bought a house with owner financing, so the morgage payments aren't being reported. I'm looking at a 2 year term before I need to apply for a tradional morgage to pay off the previous owner. So I feel like establishing a positive history with installment loans as soon as possible is pretty important. Also why I've been on an app spree - If I time things right, all the HPs should be falling off right around the time I apply for the FHA.

Looked at my options through tradional and online lenders. Got a prequal for a $10k loan through Avant, to be denied for lack of history with installment loans.

@Anonymous local credit union offers CD secured loans @ 2% above the CD interest rate. I'm thinking I could take some cash from one of my brokerage accounts, put it into a 24 month CD, then take out a 24 month loan against the account. The interest payments would be low, and I could immediately refund the brokerage account.

The other option my parents suggested was an auto loan. The interest through the CU is reasonable, but I've already got 2 trucks and a car paid off. I don't really need another vehicle. 

Also just applied for the FASFA. Been paying for college mostly out of pocket, but taking out student loans would help ease my cash burn, and potentially positively impact my scores.

Any thoughts?

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Personally, I would not go CD secured, I would go regular savings secured. That way you can make the first few payments "out of pocket", then set it up to autopay from the funds in the savings account, as each payment will free up the savings equal to the principle paid. Tha amount does not need to be large, either, $500 is plenty for such loans.