Reply
Moderator Emeritus
llecs
Posts: 32,880
Registered: ‎08-04-2007

Re: FICO score says I need a mortgage!?!


SavvyInvestor wrote:

Yes, this is the info I'm getting from the USAA CMS.  Since the service is coming from Experian, does that not mean that the score they're giving me is the real Ex FICO?   Am I being ripped off here?



None of the scores you are looking at are FICO scores.

 

Ignore that CMS' advice too. It is often counter-productive to FICO scoring and in some cases, taking their advice can hurt your FICO. You don't need a mortgage to get a high FICO. There are plenty of folks in here who have hit or are entrenched in the 800s with no mortgage at all.

 

______

 

LOCs are viewed and scored like a CC (up to a certain limit...beyond $20k). If you take the LOC, and max it for whatever you wanted the $$$ for, you will see a significant FICO hit up until you can pay it off.

Member
SavvyInvestor
Posts: 44
Registered: ‎04-27-2012

Re: FICO score says I need a mortgage!?!

[ Edited ]

llecs wrote:

LOCs are viewed and scored like a CC (up to a certain limit...beyond $20k). If you take the LOC, and max it for whatever you wanted the $$$ for, you will see a significant FICO hit up until you can pay it off.



I'm talking about an installment loan.  I take the $20k loan out and see what it does. Since the util of installment loans counts for much less than for LoC or CCs it should have a boost to the FICO scores due to my overal CL going up, right? 

 

But if it does hurt due to the high util of the installment loan, I can take that $20k I just got from the installment loan and use it to pay $19.5k on the loan.  This reduces the utilization quite dramatically.

 

Either way, I have tripled my total credit limit at the cost of one tradeline. 

 

Moderator Emeritus
llecs
Posts: 32,880
Registered: ‎08-04-2007

Re: FICO score says I need a mortgage!?!


SavvyInvestor wrote:

llecs wrote:

LOCs are viewed and scored like a CC (up to a certain limit...beyond $20k). If you take the LOC, and max it for whatever you wanted the $$$ for, you will see a significant FICO hit up until you can pay it off.



I'm talking about an installment loan.  I take the $20k loan out and see what it does. Since the util of installment loans counts for much less than for LoC or CCs it should have a boost to the FICO scores due to my overal CL going up, right? 

 

But if it does hurt due to the high util of the installment loan, I can take that $20k I just got from the installment loan and use it to pay $19.5k on the loan.  This reduces the utilization quite dramatically.

 

Either way, I have tripled my total credit limit at the cost of one tradeline. 

 



The words "line of credit" were mentioned a couple of times for the $20k. If that $20k is an installment loan, then it isn't factored into CC util. It's a loan. If the $20k comes from a line of credit (LOC), then it is scored exactly the same as a CC and factors into revolving credit vs. installment credit.

 

Installment utilization is scored seperately from revolving util. If the new $20k comes from a loan, and the $20k is used as proceeds to pay down existing revolving debt, then you stand to see a nice FICO increase as those balances come down. You aren't adding $20k in CLs by doing this. However, if you take $20k from a LOC, and use it to pay existing revolving debt, you are adding $20k in CLs as it is scored as revolving, but you are adding a new revolving account (the LOC) and maxing that out to pay off other revolving debt. That won't help you all that much and would probably have the opposite effect per FICO scoring. Depends on the before and after revolving util.

Member
SavvyInvestor
Posts: 44
Registered: ‎04-27-2012

Re: FICO score says I need a mortgage!?!

 

A LoC is what my goal is.  In a few years I'd like to be able to get an unsecured LoC in the $10-$50k range.

 

I have $9K in total revolving credit, with a utilization of essentially zero.  I'm proposing taking out a $20k Installment loan, backed by a $20k CD (so no hard pull to get this loan, already checked.) 

 

Since its an installment loan the utilization impact of it is less than a revolving account.  Thus I have $9k in revolving accounts at utilizatin of %0 and an installment loan for $20k whose utiliaztin starts out at %100. 

 

This may be seen as a %66 utilization ratio and cause my scores to drop.  However, my total credit limit will have more than tripled from the $9k

available on credit cards to $29k.

 

Now the installment loan for $20k I got means I have $20k cash in my account I havent' talked about using yet.   I put up the $20k for the CD, then took out a loan against it, giving me  $20k in checking, and a CD/Loan pair of $20k.

 

If I take that $20k in checking and instead of spending it on a vacation (or whatever people usually use installment loans for) and I make a payment of $19,500 into that $20k Installment Loan, I now have an installment loan with an outstanding balance of $500, and however many years to pay it off -- and my utilization is now again nearly zero.

 

Assuming that the "total credit" on my report and used in FICO scores is now $29k, an the utilization calculation hasn't been negatively impacted (either because I paid off $19.5k of the loan, or the %100 utilizatin of the loan has little impact) then this should improve my scores more than applying for increases in my credit card limits, right?

 

 

Moderator Emeritus
llecs
Posts: 32,880
Registered: ‎08-04-2007

Re: FICO score says I need a mortgage!?!

[ Edited ]

I hope I get this right...

 

You now have $9k in revolving CLs. You have added or are adding a $20k installment loan secured by a CD. If I'm understanding right, you are saying that your total credit will triple (9k from revolving and $20k from installment). You cannot look at it that way. Your total credit is not tripling. You cannot combine installment with revolving. They are not scored together (per FICO). You'll have 0% revolving utilization across 3 CCs at $0 balances on $9,000 in combined CLs. Your also have 100% installment util across 1 loan for $20k. You won't have a util of 66%. FICO scores and treat installment and revolving util way differently.

 

The amounts don't matter anyway. As an example, if each of your CCs give you CLIs of $30k in CLs, then your total CLs went from $9k to $90k. Your revolving util remains the same at 0% because of your $0 balances. Your FICO would not change any. I think you are assuming that higher CLs equals higher scores and that's not true if your revolving balances are in check (at $0 is a very good thing financially).

 

You might see a score ding with the added loan if they report due to the new credit. 100% util on installment util is insignificant. Any ding is temporary and you'll recover within a year as it ages.

 

If you take $19.5k and pay off all but $500 of the loan, it'll leave you a balance of roughly $500 (there'll be interest). Depending on your payment terms, you'll likely be forced to pay off the remaining $500 over the next 2-3 months. Any extra payment over your scheduled payment amount would go towards the principal of the loan. The extra above and beyond your payment wouldn't likely go towards future monthly payments. Any you wouldn't want it to either because the sum of your monthly payments if you are paying to term far exceed $20k due to the compounding interest.

 

If you haven't done this deal, I wouldn't do it. Assuming you don't have any installment accounts whatsoever (e.g. SLs, car), the positive impact of adding a loan is tiny and I think any gain would be washed out by the new account ding. Plus you are paying interest to a lender on your own money. Even if the interest rate on the CD is higher than the loan interest, you are losing out on potential gains had it been parked in a CD collecting dust. And as a recap, paying down an installment loan has virtually no bearing on FICO scoring. Bringing a balance down from $20k to $500 won't likely have any effect at all on your FICO.

 

Member
SavvyInvestor
Posts: 44
Registered: ‎04-27-2012

Re: FICO score says I need a mortgage!?!

[ Edited ]

 

Ok, I appreciate you taking the time to explain this to me, but unfortunately it sounds like you're saying there's nothing I can do. 

 

I have 3 open cards, one closed card (postiive) that will fall off the report in 2 years, and no other debt.  It feels like part of the issue here that I don't have enough time (Average age is 5 years, but this is going to drop a lot in 2 years) or enough total payments-- for many years I had no open revolving lines at all since I didn't need any credit.

 

When I used the FICO calculator as part of the credit monitoring service, the highest boost to my score came from upping the "total credit limit" from the present $9,000 to the "$10,000-$15,000" range.  I think even higher total credit limit figures gave a higher predicted score.

 

I can ask for CLIs on my credit cards, but two of them are with USAA which is apparently rather conservative.   I just don't know what to do, and I feel like the fact that I have this cash I can deploy for this, means that I can use it to good effect here.  (The CD returns whatever, but the loan is %2 over the CD.  IF I do an installment loan, I still have the cash afterwards, I can use it to buy, say, a bond that pays %5.  I'd be netting %3, even after losign the %2 spread of the installment loan, so I'd still be making money, and that %3 is more than most CDs are paying right now.... so the opportunity cost isn't even worse than just buying a CD.) 

 

Does your answer change any if you think about the situation 2 years from now-- I have the same credit cards, but now I have 4 $5,000 installment loans that have just been paid off.  (Since $20k doesn't matter compred to $5k, might as well do 4 loans rather than 1.)  

 

Those loans are paid as agreed, they're not risk because they are installment loans rather than revolving, and thus they aren't potential credit for me to get in trouble and I now have 4x24 more months of on time payments added to the report?

 

In this way I increase my total payment history in the file, without it actually costing me anything net (other than %2 additional interst I could have earned, but I'll still have turend a profit on the deal.) 

 

Its possible I'm proposing things that are too complex to convey in a forum posts, or I'm just terrible at explaining myself.

 

Also-- if its just that installment loans have limited impact on FICO, then I could do exactly the same thing and open four $5,000 secured credit cards.  2 years from now I'd then have 4 x 24 more months of payment history.  The advantage of installment loans is of couse that the interest rate is a lot cheaper and I can deploy the money in the interim at a profit that exceeds the interest rates... with the credit cards, keeping them at low utilization that money is tied up, and if I utilize them, then I have a much higher interest rate to overcome. 

 

So, another question- is 4 TLs of revolving over 2 years significantly more impactful than 4 TLs of installment loans that are paid off after 2 years?  In both cases you have 4 x 24 months of payment history. 

 

I guess the question is, is all paid as agreed payment history created equally?

 

New Member
MakinPenniesSqueal
Posts: 6
Registered: ‎09-04-2012

Re: How do you maximize your credit limits?

 
Frequent Contributor
scarrollprint
Posts: 382
Registered: ‎06-26-2012

Re: FICO score says I need a mortgage!?!


SavvyInvestor wrote:

 


 

So, another question- is 4 TLs of revolving over 2 years significantly more impactful than 4 TLs of installment loans that are paid off after 2 years?  In both cases you have 4 x 24 months of payment history. 

 

I guess the question is, is all paid as agreed payment history created equally?

 


You might have a tough time getting 4 different installment loans...even if you had 100 million in cash in the bank, applying for more unsecured credit is a red-flag to lenders.

 

Yes multiple tradelines do look good, but at the same time after your first 5k loan, you'll have to explain why you need another 5k - which might be easy, but by the time you get to the 4th its going to be a harder sell.

 

I think your better off getting an asset backed loan rather than just a loan for the sake of a loan. Perhaps you need a new car - or would like a new car? Trade in what you have now and buy a new car. Yes the loan is backed by the car, but if paying it off isn't a problem then why do you care if its secured with the title?

 



Current: Eq- 624 Ex - 631 (lender pulled) TU - 661 (lender pulled)
Goal 700+ across all three
Moderator Emeritus
llecs
Posts: 32,880
Registered: ‎08-04-2007

Re: FICO score says I need a mortgage!?!

MakinPenniesSqueal, I noticed you seem to be having some trouble posting. It is possible to edit your own post if you have posted an incomplete message. To edit your post, go to the post. To the right you'll see "Options." Click on "Options" and select "Edit Message" from the drop-down menu. If you have accidentally posted a duplicate message, you can use the “Report Abuse to a Moderator” link to asking the moderation team to remove one for you. To find this link, go to the duplicate post, click on "Options," then select "Report Abuse to a Moderator" from the drop-down menu. If you need any help with anything, let me know. Thanks for your contribution to the FICO Forums!

myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.

>> About myFICO
FICO Score - The Score that matters
Fair Isaac Corporation is a BBB Accredited Financial Service in San Rafael, CA
FOLLOW US Social Media Facebook Twitter Pinterest Google+