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New Member
Posts: 5
Registered: ‎01-10-2013
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Effect of Secured Loan on credit score.

I recently sold a house for ~110k.  The buyer paid cash.  Shortly after this took place a well trusted friend of mine asked for a short term loan to purchase a house.  I agreed.  I then took out a secured loan against the money I recieved from the house purchase for about 80k.   How would this affect my credit score?  I have never had this amount of money via loan unless it was for a mortgage.  Will this negatively affect my score initially and then cause my score to increase after this amount has paid off?  My score currently resides in the 770's prior to this.  Once I recieve all of the funds back, I will most likely pay this off right away (unless there's a reason to keep it around, might pay off in 1 - 2 months).

 

Thank you.

Moderator Emeritus
Posts: 32,869
Registered: ‎08-04-2007
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Re: Effect of Secured Loan on credit score.

I'd pay it off ASAP. When it reports I would guess at a small loss, maybe 10-20 or so. The damage will be temporary and I bet within a year most, if not all, will have returned. The balance really doesn't matter at all and paying it off later rather than sooner wouldn't be any different per FICO scoring. I'd pay it off sooner to avoid any interest.

New Member
Posts: 5
Registered: ‎01-10-2013
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Re: Effect of Secured Loan on credit score.

Thanks for the info.  I had figured that the amount did matter.  I also would have expected to see a increase due to this in the long term.  I'll pay it off within the next few days.

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Moderator Emeritus
Posts: 32,869
Registered: ‎08-04-2007
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Re: Effect of Secured Loan on credit score.

They only time you could see an increase due to the type of account would be when your mix of credit improves. In this case, you already have a mortgage(I'm assuming) or other loans. Therefore, nothing improved. The loss would be for the new credit ding and the potential impact to AAoA. Any loss is short-lived. Aside from these two, it can help your score over time, but that would be due to the age only. It wouldn't matter if you paid it off now or years from now, it will still report and age over time. Unless you're new to credit, the positive impact due to age wouldn't be realized for many years to come.

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