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How Does Having an Installment Loan Improve Credit Score?

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Anonymous
Not applicable

How Does Having an Installment Loan Improve Credit Score?

Of course, if it is in good standing, but how many point could it increase the credit score by? Say for example, with a year of perfect payments?

Message 1 of 15
14 REPLIES 14
manyquestions
Established Contributor

Re: How Does Having an Installment Loan Improve Credit Score?

Message 2 of 15
Revelate
Moderator Emeritus

Re: How Does Having an Installment Loan Improve Credit Score?

The payments aren't really what improves one's FICO, but having the installment loan at a pretty utilization is what really is nothing but goodness under FICO 8 and presumably FICO 9.

 

Payment history is payment history, and revolving, installment, other, doesn't matter: the absense of negative information is the positive in this case as even thousands of OK's are dwarfed by even a single 30 day late at least when it first occurs.

 

On my dirty file at 700-720ish, playing the share secured loan trick was worth 20-24 points; for a clean file, it's worth even more anecdotally.




        
Message 3 of 15
RonM21
Valued Contributor

Re: How Does Having an Installment Loan Improve Credit Score?


@Revelate wrote:

The payments aren't really what improves one's FICO, but having the installment loan at a pretty utilization is what really is nothing but goodness under FICO 8 and presumably FICO 9.

 

Payment history is payment history, and revolving, installment, other, doesn't matter: the absense of negative information is the positive in this case as even thousands of OK's are dwarfed by even a single 30 day late at least when it first occurs.

 

On my dirty file at 700-720ish, playing the share secured loan trick was worth 20-24 points; for a clean file, it's worth even more anecdotally.


+1

Agree fully with this. It is more about the mix of credit in that category of scoring, as well as each individual profile, which will.determine how points are given. Everyone will be different.



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Message 4 of 15
Anonymous
Not applicable

Re: How Does Having an Installment Loan Improve Credit Score?

I will read that huge article the other person referred me to but what is utilization since an installment loan is at 100% utilization? 

Message 5 of 15
Revelate
Moderator Emeritus

Re: How Does Having an Installment Loan Improve Credit Score?


@Anonymous wrote:

I will read that huge article the other person referred me to but what is utilization since an installment loan is at 100% utilization? 


Current Balance / Original balance.

 

<9% = winning.  So basically you simply take the loan, pay most of it back, and then sit on it for as long as possible.   Using this method makes the interest trivial as well so it's not the financial penalty of "taking a loan we don't need" has historically been.




        
Message 6 of 15
Anonymous
Not applicable

Re: How Does Having an Installment Loan Improve Credit Score?


@Revelate wrote:

@Anonymous wrote:

I will read that huge article the other person referred me to but what is utilization since an installment loan is at 100% utilization? 


Current Balance / Original balance.

 

<9% = winning.  So basically you simply take the loan, pay most of it back, and then sit on it for as long as possible.   Using this method makes the interest trivial as well so it's not the financial penalty of "taking a loan we don't need" has historically been.


Would it lower one's credit score if it happened to be at 133%, even though the loan is in good standing?

Message 7 of 15
Revelate
Moderator Emeritus

Re: How Does Having an Installment Loan Improve Credit Score?


@Anonymous wrote:

@Revelate wrote:

@Anonymous wrote:

I will read that huge article the other person referred me to but what is utilization since an installment loan is at 100% utilization? 


Current Balance / Original balance.

 

<9% = winning.  So basically you simply take the loan, pay most of it back, and then sit on it for as long as possible.   Using this method makes the interest trivial as well so it's not the financial penalty of "taking a loan we don't need" has historically been.


Would it lower one's credit score if it happened to be at 133%, even though the loan is in good standing?


Not sure how that's possible on a simple interest loan but I doubt it TBH.  Deferred student loan?  That's about the only way I could see it if someone wasn't making the interest payments.

 

I don't think there's any penalty for being over 100% in this case.




        
Message 8 of 15
SouthJamaica
Mega Contributor

Re: How Does Having an Installment Loan Improve Credit Score?


@Anonymous wrote:

I will read that huge article the other person referred me to but what is utilization since an installment loan is at 100% utilization? 


When you pay the loan down, the utlization is the balance divided by the original loan amount.

 

If you take out a $500 loan and pay it down to $45, you have 9% utilization.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 9 of 15
Anonymous
Not applicable

Re: How Does Having an Installment Loan Improve Credit Score?


@Revelate wrote:


Not sure how that's possible on a simple interest loan but I doubt it TBH.  Deferred student loan?  That's about the only way I could see it if someone wasn't making the interest payments.

 

I don't think there's any penalty for being over 100% in this case.


That's exactualy what I was thinking about if I took out a loan for school.

Message 10 of 15
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