Add Personal Loan hurt or help score (short term)?

[Anonymous]

Trying to raise scores for next year Biz LOC applications.

Cleaning up reports, finally got Efax 100% clean. Score before that is 686, so assuming with the $2k CO that fell off making it 100% clean, and getting util down from 45% to 1% I should be in mid-700s easily.

Will I help score by adding a personal loan for a small amount, say $1k or will the added debt/utilization/new account offset any gains?

[Anonymous]

You don't currently have a non-mortgage installment loan? If not you may benefit by 10-20 points IF it doesn't tank your AAoA too much. If it will dramatically lower it I would say it is best to not mess with it. In general it is probably best to leave it alone, unless you will need a 760+ score to get the Biz LOC you think you will need.

If you do get one, you will take a small ding for new account/high utility, but the high utility ding should go off after you make your first payment (and it reports) and the new account effect should go down gradually over the year.

[Anonymous]

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@Anonymous wrote:

You don't currently have a non-mortgage installment loan? If not you may benefit by 10-20 points IF it doesn't tank your AAoA too much. If it will dramatically lower it I would say it is best to not mess with it. In general it is probably best to leave it alone, unless you will need a 760+ score to get the Biz LOC you think you will need.

If you do get one, you will take a small ding for new account/high utility, but the high utility ding should go off after you make your first payment (and it reports) and the new account effect should go down gradually over the year.

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What is AAoA?  If you mean my utilization, my plan is to take a $1000 loan, pay off $700 the first month and then make min payments or more after that.  I just want an active installment loan on my report when I apply.  I figure if utlization on that is down, plus it helps overall utilization as well, that might work. Is AAoA differnt then that?

I definitely want to get scores up to 760+

Efax is currently 686.  Last baddie (Cap1 $2k CO) just fell of which helps util + the fact the report now 'jibes' (i.e. good accounts + no bad accounts), a couple of non-reporting accounts should be adding back, and getting util down from 30%+ to 1% when I apply. Hoping that can shoot me to high 700s

TU is 700, $2k CO is falling off in December, making that perfect as well, thinking I should gain at least 25 points on that, + points for getting util down to 1% as well.

Experian at 696, 2 Baddies falling off of that as well December, util going down.

To all of them, trying to get Amex to give me a card AND date back to my old 1980 card which would add a 28 year old good Amex to all my scores.

If an installment loan will help push those over the 750 mark that would be perfect.

[Anonymous]

AAoA = Average Age of Accounts. Thus a new account lowers your average age and a 28 year old Amex would increase it. Depending on the number of your current accounts and how many years old they each are, your moves will have different effects on your score.

[CreditAble]

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@Anonymous wrote:

 my plan is to take a $1000 loan, pay off $700 the first month and then make min payments or more after that.  I just want an active installment loan on my report when I apply.  I figure if utilization on that is down, plus it helps overall utilization as well, that might work.

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 I am addressing only the plan of repayment.

 I am not commenting on the overall advisability of implementing the installment loan plan in your particular situation. 

 I would not repay the $700 in one month. It would be obvious in a future manual review of your file that you only really borrowed $300 and and actually only demonstrated an ability to repay $300. Your FICO score might benefit because of a low installment utilization with your plan.

 You would, however better demonstrate a capability of managing an installment loan of $1,000 over time by making two or three whole monthly payments each month in the beginning of the loan term. That would probably better serve your overall credit image. The rapid paydown over a few months will still reduce your "util" fast enough.

 The whole point of having installment loans in good standing on one's credit history, is to reassure future creditors that  the consumer has demonstrated the ability to make regular monthly payments over relatively long periods of time.

 A major consideration for your plan:

 There are no "minimum payments" in an installment loan. The payments are fixed and (usually) due every month even if you paid a substantial amount back in the first month. Some lenders allow you to prepay payments and subsequently skip making those payments when they would actually have been due.

 I have paid over a whole year's payments in advance (by paying two - three payments a month) and then skipped two out of three subsequent monthly payments to drag the loan repayment term out as long as possible. Do not pay the loan off in less than two years. Less than two does not provide the maximum FICO scoring advantage.

 SunTrust used to allow the unlimited prepay and corresponding skip payments practice. The bank now only allows a person to accrue three payments in advance. If the next payment were to be due more than three months in the future, the bank applies the excess payments to "balance reduction" the next payment would still be due in three months. It would be wise to get a loan for a period of three years or longer in case you end up paying it off early. That way you won't pay it off before two years.

 You can read some more that might be of help with your installment loan plans in this thread.

 Some further observations about how FICO treats installment loans can be found in this thread.

 You are doing a great job addressing numerous issues in your credit score building adventure. I hope I might have been some help with the installment loan aspect. I will be glad to respond to any additional questions about installment loans in general if you have any. 

Message Edited by CreditAble on 11-02-2008 04:20 PM

[Anonymous]

Thanks for the very detailed feedback. I see I was misunderstanding utilization as the bank loan is not revolving so won't be factored in there.

However, I am rethinking the installment loan plan; it is for short-term benefit to boost my score for Biz Credit CC/LOC in February or so.  It seems like to get any realy benefit I'd have had to pay off 2 installment loans by now, but it seems like adding my first every installment loan to my file and having it be a new one to boot might actually hurt a lot.

[CreditAble]

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@Anonymous wrote:

 I am rethinking the installment loan plan; it is for short-term benefit to boost my score for Biz Credit CC/LOC in February or so.

It seems like to get any really benefit I'd have had to pay off 2 installment loans by now, but it seems like adding my first every installment loan to my file and having it be a new one to boot might actually hurt a lot.

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 You are probably right that an installment loan most likely would hurt at this point.

 The good news is that since an LOC is a revolving tradeline the bank will probably use a "P" FICO type of score which would not weigh the presence (or absence) of an installment loan as much. 

 Not demonstrating repayment history of an installment loan won't matter that much to a lender who is contemplating your worthiness to obtain another revolving tradeline.