Installment Loans CS inpact

corymcd88 · ‎12-08-2015

I have two small instalment loans one $600,00 for 7m and an $85,00 payment and one for $1.000 for 36m at $28,00 payment. Does having two new installments make a big impact on your CS?

Imperfectfuture · ‎12-08-2015

Better, not huge. Meant for long term effect. Question better handled in general credit or understanding Fico scoring sub forums.

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longtimelurker · ‎12-08-2015

@Imperfectfuture wrote:
Better, not huge. Meant for long term effect. Question better handled in general credit or understanding Fico scoring sub forums.

Pre your edit, was wondering about RICO subforums, Racketeer Influenced and Corrupt Organizations forums would be an interesting place to pick up tips!

Imperfectfuture · ‎12-09-2015

@longtimelurker wrote:
@Imperfectfuture wrote:
Better, not huge. Meant for long term effect. Question better handled in general credit or understanding Fico scoring sub forums.
Pre your edit, was wondering about RICO subforums, Racketeer Influenced and Corrupt Organizations forums would be an interesting place to pick up tips!

Auto correct failed me. As to the Rico forums, where do you think we send former MS'ers?

Signature needs updating

Anonymous · ‎12-09-2015

Initially the installment loan has a negative effect after you apply and the trade line reports.

1. Inquiry hit

2. New Tradeline reporting and reduction in AAoA

3. High installment utilization

However once it reports, you pay it down for a while, you get points added to your score. Oncetilization hits below 70% it helps in several ways

1. It helps your credit mix

2. The lower you own on the loan, a few more point increase. Maybe in the 70%, 40%, 10% utilization area. Just a guess on my part.

This is why when a installment loan closes, especially if it is the only installment loan, FICO score drops 20 points +10 or -10, depending on your credit.

One installment is all that is required, with maybe two installments maxing this area out.

Anonymous · ‎12-09-2015

@corymcd88 wrote:
I have two small instalment loans one $600,00 for 7m and an $85,00 payment and one for $1.000 for 36m at $28,00 payment. Does having two new installments make a big impact on your CS?

The key question for you is whether these are your ONLY open installment loans. For example, do you have a car loan? Student loan? Mortgage?

If the two installment loans are your only installment loans, then they are helping you out a lot more than if you didn't have any. If you already had a larger I-loan (like a car, or 15k of student debt, etc.) then you are getting little benefit from them. (There's a slight benefit you'll have from them in a few years regardless, which is that you'll have additional closed accounts with solid payment history -- this helps make your profile appear "thicker".)

When will the 36 month loan be paid off? Do you have any particular big credit needs coming up in the next five years? (Car house, etc?)

damac2004 · ‎12-09-2015

i got a propser and lending club loan back in september to help me out while waiting for a case to settle. i am not sure if i did the right thing and didn't have to get them but i didn't have any loans open and i wanted to start rebuilding credit.

at the time my credit cards were being heavily used. just in the process of paying off all balances except one in stages and my fico score has already gone up 80+ pts with one card still needing to report a 0 balance and another card being payed off that was at $930/2800. so i expect to see another increase in score still, probably small.

the prosper was for $2000 and didn't show an effect on my scores when it reported as a new account. the lending club did and dropped my score 8 points. then myfico showed a good mix of credit message.

i actually had planned as an experiment after i clean up my credit cards by next month to mess around with the installment loan balances. i wanted to pay off the lending club to see what happens. then after pay down the prosper so it would ride out over 6 months, because i planned on getting a car in the near future.

im curious myself to see how paying off an account as agreed but early might effect things or if i just took a credit hit now to get started with installment loans(never had a car loan), and this will factor positively with a score increase somewhere down the line

CreditDunce · ‎12-09-2015

There are some good threads on how installment loans affect FICO 08 scores. Here is one (there are many others if you search):

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/penalized-for-not-having-installment-loan...

For detailed info on how to quickly maximize the FICO 08 benefit:

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/...

To be complete, here is another one talking about some of the different options for shared secured loans:

http://ficoforums.myfico.com/t5/General-Credit-Topics/Comparison-Share-Secured-savings-loans/td-p/40...

As CGiD pointed out, there is no need to add a shared secured loan if you have other installment loans (e.g. Auto, Mortgage).

If P2P loans (e.g Prosper, Lending Club) make financial sense, then by all means utilize them. However, they may not be the best for FICO scoring. I believe I have read some threads saying they are classified as a finance company loan. A positive trade line will probably help more than it hurts. However, for gold plated reports, having a finance company trade line on your report can be a small negative.

Anonymous · ‎12-09-2015

If you want some advice, we can help you do the right thing regarding your I-loans. Can you clarify though a few things?

* If you paid the two loans out according to their full term, when would each one close out?

* When would you like to buy a car ideally?

* Do you have any negatives on your credit reports? (Lates, chargeoffs, collections, liens, etc?)