Rebuilding Your Credit

[jacksonvillejaguar]

I have a saving secured loan with my credit union that I opened up 5/11 with a balance of $3,800 @ 2.4 %. As of today 4/29 the balance is 2,622, and I was thinking about opening another one for about $5,000 -$6,000 @ the same interest rate. I know I will save on interest if I pay the first loan off then open another. My question is what action will help my FICO score the most? I have two credit cards in the mix as well one with a  $2200 limit , and another with a  $1500 limit I keep my cards under a 10% balance PIF the day after my statement closes each month to avoid  interest charges.

[SavvyInvestor]

Your total credit card limit is $3,700 and your maximum installment loan outstanding was $3,800.  If you open another installment loan for the amount of $5,000 that would seem to boost the total credit limit by about %50, while installment loans count much less against utilization.  So, this should boost your score.

Having two lines and paying on them regularly without lates should improve your score more than using the money and paying off the first loan (which will cause it to close and thus start the aging process until it falls off of your report).... so if maximizing your FICO is the goal, I think opening the second loan should be effective.  (I've got a similar questions in a thread I created, but so far havent' really gotten a clear answer.) 

The FICO simulator I use says that boosting my total credit liimt bt %50 boosts my score dramatically (everything else the same) And it is counting everything as "credit limit" (including things that are paid off.) 

BTW, it appears most companies report to the credit unions the amount on the statement.  Thus if you pay the day after the statement your utilization will be higher than it would be if you just paid the day before the statement.  IF you have online access to your accounts you can pay the balance the day before the stament day and this will bost your fico scores by lowering your credit utilization.  (you could even set up automatic payments along these lines.) 

[jacksonvillejaguar]

Thanks for your input. Maybe I was not clear but I pay my credit cards down to a low balance between 5%-9% before my statement cut off date, then I pay in full before I accure interest charges and start all over. My goal is to build a really good FICO score so I can buy a house maybe in 3 years, then screw trying to keep a high credit score.

[jacksonvillejaguar]

bump

[SavvyInvestor]

Answered but you seem to have missed it.

[kjm79]

No need to open a new installment loan.  Keep paying back the original loan per the loan terms.  Installment loans are not included in your utilization.  Opening another one will most likely only result in a new inquiry and possibly lower your AAoA.  You already have a mix a credit of revolving and installment tradelines.   

[kjm79]

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SavvyInvestor wrote:

The FICO simulator I use says that boosting my total credit liimt bt %50 boosts my score dramatically (everything else the same) And it is counting everything as "credit limit" (including things that are paid off.) 

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The only items that are included in util are accounts that are open and lists a limit (with or without a balance) and closed accounts with a limit AND balance reporting.  Collections and Judgments are not factored into util.  Installment util is factored separately from revolving util and is a very small part of FICO scoring. 

[jacksonvillejaguar]

Ok, would it be a good idea to raise my captial one secured card to the 3k max, and possibly opening another one?

[SavvyInvestor]

No, you were on the right track originally.  People seem to focus on inquiries and account age and utilization but forget about thickness of your file and total amount of payment history.

The nice thing about savings secured loans is (at least with some credit unions I've seen) as the loan is paid down the savings that were encumbered are freed up.  

If you have a chunk of money, you could open another installment loan and then start racking up another month of paid as agreeds every month. 

If your bank frees up the collatoral as the loan is paid off, paying off a chunk of the original loan-- just enough so that the minimum payment will complete the loan on the original end date, thus you don't end up shortening the loan, but you do free up a lot of the collatoral--- would give you more money to back that second loan. 

The nice thing about this is you could open as many loans as you want:

$5000 in savings. Loan against it gives you $5,000 in cash.  So now you have $5,000 in savings, a $5,000 debt, and $5,000 in checking.  You put $4,500 to pay off the first loan, freeing up $4,500 of your collatoral which when paired with the remaining $500 form the first loan gives you $5,000 in cash, and $500 in encumbered capital and a $500 loan deficit. (Say its a year loan and you'll pay back that remaining $500 over the course of a year)

So you can take out another another $5,000 loan backed by that $5,000 in savings and get $5,000 in cash again, use it to pay $4,500 down.

You now have two loans, both of which have $500 due on them... and if you've let them report then they reported as $5,000 loans. 

And you still have your $5,000!

[Repo-ed]

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SavvyInvestor wrote:

No, you were on the right track originally.  People seem to focus on inquiries and account age and utilization but forget about thickness of your file and total amount of payment history.

The nice thing about savings secured loans is (at least with some credit unions I've seen) as the loan is paid down the savings that were encumbered are freed up.  

If you have a chunk of money, you could open another installment loan and then start racking up another month of paid as agreeds every month. 

If your bank frees up the collatoral as the loan is paid off, paying off a chunk of the original loan-- just enough so that the minimum payment will complete the loan on the original end date, thus you don't end up shortening the loan, but you do free up a lot of the collatoral--- would give you more money to back that second loan. 

The nice thing about this is you could open as many loans as you want:

$5000 in savings. Loan against it gives you $5,000 in cash.  So now you have $5,000 in savings, a $5,000 debt, and $5,000 in checking.  You put $4,500 to pay off the first loan, freeing up $4,500 of your collatoral which when paired with the remaining $500 form the first loan gives you $5,000 in cash, and $500 in encumbered capital and a $500 loan deficit. (Say its a year loan and you'll pay back that remaining $500 over the course of a year)

So you can take out another another $5,000 loan backed by that $5,000 in savings and get $5,000 in cash again, use it to pay $4,500 down.

You now have two loans, both of which have $500 due on them... and if you've let them report then they reported as $5,000 loans. 

And you still have your $5,000!

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That's some great info, thanks for taking the time to reply again.