Re: Finally bit the bullet for a Secured Share loa... - myFICO® Forums

joltdude · ‎02-02-2016

I finally opened a secured share loan after my score decided to stagnate for almost a year.. (The infamous Yuppie Foodstamp Loan) since I do *not* have any installment loans on record... As previously stated it basically was sign papers and get 90% RTV deposited into your choice of account...

Iv heard mixed things lately about how to pay it off.. Unfortunately its only a 12 month note.. Some have said just pay most of it in the first month (no prepayment penalty) but others have said just let it ride and autodeposit the payments... for the history.... Know better than to pay it off but whats the common consensus...

There was no pull of course... The bank actually kept suggesting just a regular personal loan but once the rep realized what I was doing, she knew what I was up to and was like. Yeah you dont want the personal loan.. and the interest... No no I dont =)... and i dont want a hard pull either... =)

Any comments on preference of how to handle it?

-J

jamie123 · ‎02-03-2016

Seeing that it is only a 12 month loan you might consider just making the 12 payments and get all the history that goes with that. Keep in mind during this time that if you need extra points you can always pay just over 90% of the loan off for another point boost.

It is not just the point boost but the loan history that will make you more attractive to some lenders. It can be a bit more difficult to get an auto loan without having installment loan history on your reports.

Starting Score: EQ 653 6/21/12
Current Score: EQ 817 3/10/20 - EX 820 3/13/20 - TU 825 3/03/20

Anonymous · ‎02-03-2016

@joltdude wrote:
I finally opened a secured share loan after my score decided to stagnate for almost a year.. (The infamous Yuppie Foodstamp Loan) since I do *not* have any installment loans on record... As previously stated it basically was sign papers and get 90% RTV deposited into your choice of account...

Iv heard mixed things lately about how to pay it off.. Unfortunately its only a 12 month note.. Some have said just pay most of it in the first month (no prepayment penalty) but others have said just let it ride and autodeposit the payments... for the history.... Know better than to pay it off but whats the common consensus...

There was no pull of course... The bank actually kept suggesting just a regular personal loan but once the rep realized what I was doing, she knew what I was up to and was like. Yeah you dont want the personal loan.. and the interest... No no I dont =)... and i dont want a hard pull either... =)

Any comments on preference of how to handle it?

-J

Shouldn't the payment history appear the same either way on the credit report-paid as agreed each month. My understanding is that these types of loans provide the best FICO boost when showing most of the balance as already paid.

I've considered taking one out for 12 months just to quickly have a paid installment loan on the report. If I get an auto loan in the time it's open, then I won't worry about getting any more of them. If I don't, then I go for a 48-60 month one as a follow up.

Grafton88 · ‎02-06-2016

The reason people try to pay most of it off initially is that the credit agencies look at how much is owed on the loan. As that percentage goes down it looks better.

You get points for having the loan.

You get points for paying it on time.

You get points for having a low balance.

Did you set up auto payments?

I just got a loan in January. The term is also 1 year. I have paid 60% of the balance. In March I will pay anther 20%. I will then make small monthly payment. The credit agencies will see I have an installment loan. They will see it is being paid off on time. They will see that the balance is low. I figure that will give me the maximum points and will make my CU happy should I want a bigger loan.

Anonymous · ‎02-07-2016

Nice summary by Grafton just now.

The reason that a person might choose to pay most of it off early in the term is twofold:

(a) To lower the amount of interest that you pay, during the rest of the life of the loan.

(b) To cause the loan to appear to be mostly paid off, during the rest of the life of the loan.

(A) is a financial reason. (B) is a scoring boost reason.

If the person has chosen a very short term for the life of his loan (e.g. 12 month) then those reasons don't matter so much, because the loan is going to come to end soon anyway.

But if the person has selected a much longer term (we typically recomend 5 years) then those two reasons matter a lot more. This is why Jamie said that ,because it was a 12-month loan, it probably made sense to pay it off via autopay in 12 equal payments.

SouthJamaica · ‎02-07-2016

@joltdude wrote:
I finally opened a secured share loan after my score decided to stagnate for almost a year.. (The infamous Yuppie Foodstamp Loan) since I do *not* have any installment loans on record... As previously stated it basically was sign papers and get 90% RTV deposited into your choice of account...

Iv heard mixed things lately about how to pay it off.. Unfortunately its only a 12 month note.. Some have said just pay most of it in the first month (no prepayment penalty) but others have said just let it ride and autodeposit the payments... for the history.... Know better than to pay it off but whats the common consensus...

There was no pull of course... The bank actually kept suggesting just a regular personal loan but once the rep realized what I was doing, she knew what I was up to and was like. Yeah you dont want the personal loan.. and the interest... No no I dont =)... and i dont want a hard pull either... =)

Any comments on preference of how to handle it?

-J

Yes and I just learned from bitter experience. I paid it down to 15% and when it reported that popped my scores up around 25 points. Then I paid it to zero and my scores dropped around 25 points. So here's what you should do:

1. make sure to call custsomer service and remove auto pay

2. pay the loan down to 15%

3. keep it open for all 12 months, sending in only nominal payments

4. as you enter the 12th month, take out a new loan.... declining autopay... and make it for 48 mos. or so... then pay it down to 15% and make nominal payments for 48 mos.