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tmacar
Posts: 91
Registered: ‎03-25-2008
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Does an installment loan hurt my score?

I recently paid my revolving debt to credit ratio down from 81% to 15%, and was waiting for the new balances to get to my credit reports. A few days after making the last payment, and way before anything could have been reported, ScoreWatch sent me an email telling me my score had gone from 638 to 658.

I went to the simulator to see what would happen after all the new balances got reported, and it said my score would go to between 728 and 768. I have heard from numerous sources that once the FICO gets above 720, one will usually be approved for anything he applies for, so getting to at least 728 is very important to me.

However, I recently got a $2500 signature loan from my credit union, and Equifax just told me it has gotten on my report. Is this going to hurt my score? I know opening a new revolving account will usually result in a score drop. Will a new installment account do the same thing?

Also, I just paid off another installment loan, from a consumer finance company, a couple of months early, and that should be getting reported any day now. I have, in effect, traded an old consumer finance loan for a new credit union loan, with about $20 less for a monthly payment on the new loan. Will there be either a net gain or a net loss in my score after both of these changes get reported?
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RobertEG
Posts: 18,498
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Re: Does an installment loan hurt my score?

[ Edited ]
Tmacar. that is not a simple question to answer..  From a credit mix category scoring, you have exchanged one install loan for another, so in a month or two you credit mix should be the same..  But presumably, as is allmost assuradly true, you suffered a hard pull inquiry to obtain the new loan, so around a 10 pt hit in new credit inquiries  Your % util of installment loan, assuming the old loan when paid off had a low balance, will increase with the addition of the new loan.  The new loan will also reduce your avg. age of accounts, and how much depends on your avg age prior to addition of the new loan.
So, in a simple FICO analysis, I dont think it will be a wash.  I would expect your FICO to take a short term hit of at least 10 points based on the impact of the new install loan.  However, you have other more significant changes in your CR due to the change in your revolving util.  I am speaking only iwth regard to the new install loan, and your overall score may go up, but the impact of the new install loan in and of itself will almost certainly be a neg.
 


Message Edited by RobertEG on 05-10-2008 12:27 AM
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haulingthescoreup
Posts: 28,098
Registered: ‎04-01-2007
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Re: Does an installment loan hurt my score?

[ Edited ]

tmacar wrote:
I recently paid my revolving debt to credit ratio down from 81% to 15%, and was waiting for the new balances to get to my credit reports. A few days after making the last payment, and way before anything could have been reported, ScoreWatch sent me an email telling me my score had gone from 638 to 658.

I went to the simulator to see what would happen after all the new balances got reported, and it said my score would go to between 728 and 768. I have heard from numerous sources that once the FICO gets above 720, one will usually be approved for anything he applies for, so getting to at least 728 is very important to me.

However, I recently got a $2500 signature loan from my credit union, and Equifax just told me it has gotten on my report. Is this going to hurt my score? I know opening a new revolving account will usually result in a score drop. Will a new installment account do the same thing?

Also, I just paid off another installment loan, from a consumer finance company, a couple of months early, and that should be getting reported any day now. I have, in effect, traded an old consumer finance loan for a new credit union loan, with about $20 less for a monthly payment on the new loan. Will there be either a net gain or a net loss in my score after both of these changes get reported?


If you're already getting score jumps, it sounds like at least one of your paid-down cards has updated. What did Scorewatch say was the reason for the jump?

I'd say that you're going to get a very temporary drop from the new loan, although I'd guess closer to 5 points, based on where your scores currently are. It will get buried in the overall improvement resulting from your lowered util. You might want to make an immediate payment on the new signature loan, if you can, as a loan at 100% gets FICO all in a twitter. But you can also just wait to make your payments on schedule. I got a negative for a new car loan being at high util (100% ), but it went away once the first schedule payment was reported.

Congrats on getting on top of your util! Keep it stomped down, with the next goal to go under 10%, with only a few cards (less than half) showing a balance. RobertEG will holler at me for saying that, because as he so rightly points out, this fine tuning is only needed when you're planning to apply for something. But I think that it's a good habit to get into, and if an opportunity pops up suddenly, I like having my scores up as high as I can get them, so as to be ready for anything. And even though util is the most easily fixed issue, there is still a built-in delay, as you are experiencing, involving the creditors reporting the new balance to the CRA's, and then the CRA's putting down their coffee cups and brushing the doughnut crumbs off their keyboards and entering the updated info on to your reports.


edit: gah, stupid percentage mark + close parenthesis = smiley

Message Edited by haulingthescoreup on 05-10-2008 07:28 AM
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
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ilovepizza
Posts: 3,071
Registered: ‎05-17-2007
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Re: Does an installment loan hurt my score?

[ Edited ]
The UTL payoff may not have fully hit yet so your score could still go up some. Then again the new account will probably take it down for a short while and might explain why it didn't come up as much. Paying off a consumer finance company loan can also result in a small score drop, no idea why but some people report that it has this effect. The credit union loan if reported as something other than consumer finance would fix that in a few months since that will probably raise your score. I think you might have to wait a few more months to see points from that loan. Try to stay away from consumer finance loans and stay with bank loans. They are scored differently. But sounds like you are doing very well.

Message Edited by ilovepizza on 05-10-2008 01:01 PM
If we never set higher goals we would never get as far.
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tmacar
Posts: 91
Registered: ‎03-25-2008
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Re: Does an installment loan hurt my score?

No, none of the balances have updated yet except a Walmart card that only has a $125 limit and went from $65 to $29 today. There were NO alerts on the 5th when the score went up 20 pts to 658. I'm guessing that what happened was a delinquency or possibly a couple of them "aged off" the report. ALL of my delinquencies were in 2001, so I've been losing them as 2008 progresses, and I only have 2 left on Equifax now, which are an original account and its collection, which for some reason is not being categorized or scored as a collection.

The new loan IS showing with a high credit of 2500 and a balance of 2500, and from what you say I guess it's gonna hurt me. At least the balance will drop by a payment on June 1. Also, the one I paid off early is still showing as open and having a balance. But I've heard that a finance company loan can be a bad thing, and that it is at least not as good for your credit as a bank/credit union loan. Is that true?

Also, I took a risk. I sent disputes to Equifax and Experian, saying I realize that account balances are updated periodically, but what is showing in my report is so far removed from the current reality that it is having an incredible impact on my apparent credit worthiness. The figures in my report show a total revolving debt of xxxx and a total revolving limit of xxxx, for a debt to credit ratio of 81%, while the reality is that I have a total limit of xxxx with a total debt of only xxx, for a 15% ratio. Furthermore, from figures I have seen from time to time in my report, the "normal" periodic updating of balances can sometimes leave them out of date by as much as several months. This is having a negative impact on my score of between 70 and 100 points, and requires immediate correction.

I then listed the accounts, with the balances currently showing in the reports and what the real current balances were. I also went on line, called up each account, printed a screen shot which included the computer's date/time stamp, and included them with the letter.

I also said in the letter that I was including documentation of each account's true balance, and that if the credit bureau did not feel this was sufficient proof to make the corrections, they were not to designate the accounts as being in dispute, that I was not disputing the accounts themselves or anything listed in them except the current balance, and that if any creditor or creditors had already updated the balance before they received my letter they of course need do nothing at all regarding that account or accounts.

That is the risk I took. That they might designate all the accounts as in dispute, removing them from the score calculations. That would leave me with exactly 2 active accounts, my truck loan and the new credit union loan.

By the way, I have a total of 6 VISA/MC accounts, 1 gas card, and 2 retail store cards. 3 of the VISA/MCs have zero balances, none of the other accounts is over 25% at most, and my overall revolving debt to credit ratio is at 15%. Does that seem to be a good mix? I plan on closing the 3 zero balance VISA/MC accounts as soon as their CLs are replaced by CL increases on the 3 I want to keep.

Anyway, FICO said, starting with a 658, the balance changes will take me to between 728 and 768. I hope the new loan won't hurt so much that I don't get over 720.
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tmacar
Posts: 91
Registered: ‎03-25-2008
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Re: Does an installment loan hurt my score?

Oh, I forgot to mention. I got the new loan on April 16, and have already made a payment. The credit union automatically took it from my checking account on May 1. However, for some reason, even though the Report Date on the Equifax listing is May 1, that 1st payment isn't showing up in the balance. I guess the balance for this account is always going to be a month out of date.
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tmacar
Posts: 91
Registered: ‎03-25-2008
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ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

In-Frigging Credible. Equifax told me yesterday the new loan from the credit union showed up on my report. Today, 3 hours ago in fact, according to tis time stamp, MYFICO sent me an email alert, saying that a new account had been added to my credit report. It was, of course, the credit union loan. I had already pulled a brand new Equifax earlier today (I belong to the Equifax site, also), so I already knew that absolutely nothing has changed except for that new account.

The email said there have been some changes to your report. Also, your score has decreased 56 points!!!!

I checked MYFICO alerts and also double checked today's Equifax report. Sure enough, the ONLY change is the addition of the credit union report. And my score dropped from 658 to 602. Is this normal? Can adding one new account, an installment loan, cost 56 points? I never lost anything like that even when a new revolving account got added.

And now I can't even use the score simulator to try and see what my score will be when The pay downs get posted unless I shell out another $16 for a new Equifax on the MYFICO site.
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tmacar
Posts: 91
Registered: ‎03-25-2008
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TOTAL FICO INSANITY Re: Does an installment loan hurt my score?

Oh, I forgot one thing. There was NO inquiry added to my report. In the first place, the hard pull was on April 14, so it would likely have already been on the report, but more to the point, my credit union only checks Experian for anything except for things like mortgages and large business loans.
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haulingthescoreup
Posts: 28,098
Registered: ‎04-01-2007
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Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

No, that doesn't make any sense at all. Even if the first score increase was spurious, you wouldn't have lost 36 points for a new loan.

CS is closed tomorrow (Sunday), so you'll have to wait till Monday if you want to call someone.

In the meantime, I know that you said that you already checked your reports, but did you count to see if every single account, open or closed, is on both reports? What you're going through sounds an awfully lot like a split file, where part of your accounts have broken off, and sometimes one portion is pulled for scoring, and sometimes another.

Please tell me you don't have a Sallie Mae student loan? They've just changed how they code some of their payment plans, and people are posting score drops of up to 125 points. The thread has been stickied on this board.
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
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tmacar
Posts: 91
Registered: ‎03-25-2008
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Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

No, thank God, I don't have a Sally Mae. I read about that horror story, and was thinking how lucky I was to get through college without one. IN fact, I'm not even sure they existed back then (in the 70s - giving away my age here).

Has ANYONE ever seen a drop like this due to one new installment loan?

And does anyone know of a case where someone called FICO and FICO replied that yes, they had made a scoring error, and then fixed it?

I just this minute finished comparing my May 5 Equifax, when I was at 658, to my May 10 Equifax, which is at 602, account by account. I also counted the number of inquiries. The May 5 and May 10 reports are entirely identical, including both open and closed accounts, revolving and installment, except for the addition of the credit union loan and a change in balance on my Walmart account from $68 on May 5 to $29 on May 10. That's the only one of my new balances that have been reported so far, and THAT certainly didn't drop my score 56 points.

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