@Anonymous wrote:Hunch all you like, Fair Isaac has plainly stated that credit mix (revolving+installment+mortgage) is factored into scoring. If you do not have one of those legs then you are leaving points on the table, there simply is no debate there. The only thing that is legitimately up for debate is the NUMBER of points. Is it 5 points, or is it 25 points?
Now considering that these points can be "purchased" with a $500 share secured loan at 3.99% for 36 months - total interest is about $45 minus the interest paid on the security deposit... well, if one is sitting on the cusp of an interest breakpoint for a $300K mortgage, spending that $$45 could in fact save one several thousand dollars in interest payments over the life of that mortgage. I'd hardly call that "hurting yourself to help your FICO score".
What Fair Isaac tells us, and what is true, are not necessarily the same thing.
If Fair Isaac was forthcoming about what we needed to do to improve our score, this section of the the MyFICO forum wouldn't have any purpose.
In fact, most of the threads you see in this section involve people having been led to believe the wrong things about the FICO algorithm mysteries, and being shocked
that their score went up when they thought it would go down, or vice versa.
If you have data showing that a purposeless instalment loan enhances your credit score, I would love to see it.
I wouldn't saddle myself with instalment loans I don't need to enhance my credit score anyway. But I'm skeptical that doing it would enhance my credit score in the first place.
@Anonymous wrote:
@SouthJamaica wrote:What Fair Isaac tells us, and what is true, are not necessarily the same thing.If Fair Isaac was forthcoming about what we needed to do to improve our score, this section of the the MyFICO forum wouldn't have any purpose.
In fact, most of the threads you see in this section involve people having been led to believe the wrong things about the FICO algorithm mysteries, and being shocked
that their score went up when they thought it would go down, or vice versa.
If you have data showing that a purposeless instalment loan enhances your credit score, I would love to see it.
I wouldn't saddle myself with instalment loans I don't need to enhance my credit score anyway. But I'm skeptical that doing it would enhance my credit score in the first place.
Well, SJ, for a person to not to be entirely forthcoming is not the same think as lying about what he does say. That's why in court we swear to tell the whole truth and nothing but the truth. The two clauses are different. FICO has always admitted that they do not reveal every detail of their algorithms. That's different from saying that what they do reveal they are lying about.
They are on record that one of the things they measure is "types of credit":
http://www.myfico.com/CreditEducation/Types-of-Credit.aspx
Now there's no question that "adding a Share Secure loan" is not some magic wand. You have to look at the person's total profile. For example, does he already have an installment loan already in his profile? Well then, he's already got that type of credit, so he may get little benefit. Also you look at the other factors: adding a new account will lower his AAoA for example. And so on.
Adding a small installment loan like that is something to consider if you have no installment loans in your history, or if the ones you have or old and may drop off soon. It's not right for everyone. Just one option that is right for some people.
Well the very first sentence on the page to which you linked says "it's not a good idea to open credit accounts you don’t intend to use"
@Anonymous wrote:Hey SJ. Seems to me like there are really two things going on, both of which you are posting about, but which are just different things.
The first thing is that you've made a decision not to take out any installment loans, at least as far in the future as you can see. There's all kinds of personal reasons to do that. You're just planning to keep your head down, pay your CCs, let your existing accounts get older. That can't be a "wrong" decision because it's YOUR decision. So far that's fine.
(Side note: There was a question I had initially -- which was whether you were announcing a decision never to get another installment loan ever, or whether you were saying you just planned not to add an installment loan if its only purpose was to attempt to give yourself a score boost. I couldn't figure out from your OP which you meant, which is why I asked.)
The second thing that seems to be going on is that you are making claims about how FICO works. Claiming that FICO's algorithms give you no long-term benefit for having (in addition to a CC) at least one I-loan in your profile, or claiming that FICO is lying if they say that this is a factor they use.
You're a guy I really like on here, and I am all about encouraging people to make the decisions they feel are right for them. So as far as the first thing (you announcing a personal decision you wanted to make) I am 100% behind you.
But it's the second thing that I was suggesting you rethink a bit. You can make a personal decision not to take out any installment loans without justifying it by claims about FICO that are dubious. That's probably what caused NormanFH to respond the way he did as well.
I gave you the link to show you something that focused solely on the 2nd thing: does FICO in fact assert that one of the things they look at, in computing your score, is whether your profile contains accounts of different types? The two most fundamental types are revolving and installment. Within those two types there are other sub-types: e.g. within installment there are sub-types of Mortgage, Auto, Student, and Personal. But unless this FICO category ("Types of Credit" -- 10%) is a complete fabrication on FICO's part, it must follow that a person is likely to obtain some long-term benefit from having (in addition to a CC) an installment loan.
You asked why FICO might (in the same breath) advise consumers not to open credit accounts that they don’t intend to use. There's lots of reasons. One reason is that a guy might read the page I gave you and decide to go get a mortgage (for a house he doesn't want), run up a bill at the local community college so he can take out a student loan (that he doesn't need), buy a brand new car (that he doesn't need) so he can have an auto loan, and so on. That way he'll have lot of different types of credit, right? Believe it or not, people really do that stuff. Then they have financial problems and say that FICO told them to do it. So FICO is partly just trying to protect people from doing something really dumb and getting into big trouble, all because they think FICO told them to do something.
So that's one reason why FICO might have included that piece of advice toward the top of the page. (I can think of some others.) It is nonetheless still advice, not a factual description about how their models work, which is overwhelmingly what the rest of that page is.
One final thought: in your reply to NormanFH, you said: "If you have data showing that a purposeless installment loan enhances your credit score, I would love to see it." The word purposeless suggests a misunderstanding of how credit scoring algorithms work. There's no way for a scoring algorithm to distinguish between installment loans taken out for a good and meaningful purpose (whatever that might mean) vs. those that don't serve a good purpose. What FICO can do is decide whether it is going to reward a profile with at least installment loan, but not if that loan was taken out for a silly purpose (or one FICO otherwise disapproves of). Thus, for example, I chose to stretch a student loan of mine out for a very long time, while at the same time paying off most the principal. I did that purely for its FICO benefit. FICO doesn't have any way in its model to tell what my purposes were, over and against somebody who just honestly was taking a while to pay it off.
Best wishes with your plans. As I have said, I think your plans of keeping your debt low and (given that you already have several accounts) being very careful about opening more is generally awesome.
I'm just saying, if one is going to play the 'reindeer game trick' of taking out an instalment loan one doesn't need for the purpose of affecting one's "credit mix" and improving one's score, one should have data to show that it would actually have that effect.
This guy says he got an otherwise pointless instalment loan and increased his score 50 points by doing it:
Well I'm an open minded person.
I think I'm going to give this a try... open a savings account with local credit union... take out a share loan.
And see what happens to my score.
I'm a perfect test case because I have only revolving credit.