Installment loans and FICO impact

[ScottsdaleDad]

I have 7 installment loans started before I understood FICO scoring (1 large student loan 10+ years old that won't be paid off for several years, 1 small student loan 10+ years old that I can easily pay off, 3 credit builder loans that I can also easily pay off, and 2 auto loans that I'm looking to refinance).  I also have 8 credit cards/revolving accounts.

I am getting a large bonus in a month, and will pay off and keep open the revolving lines (Keeping one <9%). My goal is to maximize my FICO scores so I can refinance both auto loans with DCU, PenFed, or Alliant. 

What strategy do you think I should follow with the small student loan and 3 credit builder loans to maximize my scores? Since I have the large student loan and auto loans, I don't know if it makes sense to keep the other installment loans open. The 3 credit builder loans were taken out about 6 months ago to build credit with Alliant, PenFed, and a local CU, but I'm not sure if 6 months is enough time to establish a history with them. I would eventually like to apply for PenFed credit cards to replace some existing cards, but I wasn't sure if they need more history than 6 months. I'm willing to keep them open to build histories and just focus on the revolving debt for now. Any thoughts?

Thanks

[Anonymous]

I apologize that the purpose and usefulness of the Alliant SSL or any credit builder loan was overstated, as a tool, with regards to YOUR profile.

This forum is an outstanding platform HOWEVER everything discussed IS NOT the appropriate step for everybody's situation.

The credit builder type products, like the SSL
Are NOT needed and don't have much value for a person with reported installment accounts...Of which you already had.

The value add for a complete rebuilder who does NOT have an installer to pair with revolving accounts is that it simulates the 'credit mix' aspect of scoring (this also works for say a senior who hasn't had an installer since Regan was President) but in the case of the OP

There were installers already reporting (auto loans and student loans), so there was NO NEED for the OP to open ANY install loan 6 months ago ...As there was no value to be added by doing so for THAT particular profile (I've explained why, it's a value for others but not a one size fits all value proposition)

Just so we are clear and to save other ppl the trouble, when you have 'history' elsewhere, there is no reason to "create" history by securing and playing out a SSL just for the purpose of building history with them, in particular.

You're much better off paying down the debt ratios on revolving accounts vs creating additional installer accounts, just because.

Again, sorry if you got the wrong idea but the theory you're working from has value for a different profile but not the most efficient for your profile...

You are better off paying down your debt load and there is no real gain you are garnishing by servicing those SSLs, none....Get rid of them

You'll have open paying on time installment loans for years to come (your words regarding the student loans) plus the auto loans....

If your score is suppressed at this point it's more likely due to debt ratio issues but definitely NOT due to lack of account variety.

Good luck

[Anonymous]

I agree with Gemini almost entirely.  Partly because people end up misunderstanding what small personal loans will and will not achieve for them, we put a clear summary of all the collected wisdom of the forum into one thread on this subject:

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

All you have to do is read the first two posts and it explains everything.  Unfortunately, you'll see that Gemini is right and that all your three Credit Builder loans did was lower your AAoA and (possibly) give you hard inquiries, since you already had open installment loans at the time.  It's unfortunate that you were not directed to this thread or that you were not given better information.

I still strongly urge you to read those first two posts of the thread so that you can understand how this part of the FICO scoring system works.

As long as you are not ready to refinance the auto loans, there is IMO no need to pay off your Credit Builder loans.  I see a slight advantage to keeping any tradeline open as long as you do not need to close it.  It's quite possible, however, that, as part of the refi process, they will compute your debt to income ratio (DTI) in which the three monthly payments for the CB loans will count into that.  In that case I'd pay those off.

You should certainly not pay off your small student loan, which will not help you.  Your plan for paying off your CC debt is very smart.  I would pay off all of it and then continue using exactly one card, keeping it reporting a small balance each month.

[SouthJamaica]

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@ScottsdaleDad wrote:

I have 7 installment loans started before I understood FICO scoring (1 large student loan 10+ years old that won't be paid off for several years, 1 small student loan 10+ years old that I can easily pay off, 3 credit builder loans that I can also easily pay off, and 2 auto loans that I'm looking to refinance).  I also have 8 credit cards/revolving accounts.

I am getting a large bonus in a month, and will pay off and keep open the revolving lines (Keeping one <9%). My goal is to maximize my FICO scores so I can refinance both auto loans with DCU, PenFed, or Alliant. 

What strategy do you think I should follow with the small student loan and 3 credit builder loans to maximize my scores? Since I have the large student loan and auto loans, I don't know if it makes sense to keep the other installment loans open. The 3 credit builder loans were taken out about 6 months ago to build credit with Alliant, PenFed, and a local CU, but I'm not sure if 6 months is enough time to establish a history with them. I would eventually like to apply for PenFed credit cards to replace some existing cards, but I wasn't sure if they need more history than 6 months. I'm willing to keep them open to build histories and just focus on the revolving debt for now. Any thoughts?

Thanks

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I don't see how it would help you to pay off any installment loan that doesn't have to be paid off, as it would just decrease the denominator in your installment utilization, thus increasing your installment utilization percentage. So I would keep a small balance of at least $100 on each outstanding loan at this point so long as it wouldn't make you past due on a payment. And any extra money from the bonus could be applied towards paying the bigger ones down, but not to zero.

Then after your auto loan goes through, knock yourself out paying things off

[Anonymous]

Hi SouthJ!  I think that DTI may be calculated by some lenders as part of the auto re-fi process:

http://budgeting.thenest.com/good-debttoincome-ratios-auto-loans-20363.html

If our OP is near a DTI breakpoint, then paying off one or more of those credit builder loans will lower his DTI and might be the smart move.  His lender should be able to guide him.

I suspect that the original amount for each of the CB loans was small -- if any of the CB loans had a fairly big size originally, then the OP should be very reluctant to pay it off, for the reasons you cite.

[SouthJamaica]

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@Anonymous wrote:

Hi SouthJ!  I think that DTI may be calculated by some lenders as part of the auto re-fi process:

http://budgeting.thenest.com/good-debttoincome-ratios-auto-loans-20363.html

If our OP is near a DTI breakpoint, then paying off one or more of those credit builder loans will lower his DTI and might be the smart move.  His lender should be able to guide him.

I suspect that the original amount for each of the CB loans was small -- if any of the CB loans had a fairly big size originally, then the OP should be very reluctant to pay it off, for the reasons you cite.

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I was just answering the narrower question "What strategy do you think I should follow with the small student loan and 3 credit builder loans to maximize my scores?"