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Will taking out a Loan (installment credit) from my bank and less than a month later i pay it all back in full (in essence not using the loan at all) -- will this strategy help my credit score since it will show i have another type of credit (installment credit) and i was able to pay it back in full?
Or will this strategy not work since i paid it off way too soon and it is best to hold onto this loan for at least 3 months (1 quarter) and pay instalment interest so the bank can report the acitivity to Equifax/Transunion. And then after 3-months pay the entire balance off in full? Will this alternate strategy work better than the above?
But in terms of the 2nd strategy wouldnt this cause the debt-to-credit ratio to be way too high (too much debt) and have an adverse affect on your score and so its better to go with strategy 1?
Thanks for the info
In the past, I have done that - but waited until the first payment was due to ensure that the loan would report.
The downside was -
1. For a very short time (up to 60 days), my utilization was up becuase it showed the loan.
2. My AAoA dropped becuase I added a new loan into the mix.
Did your score ultimately go up because of the addition of the Loan?
I have made full use of revolving credit and so i am looking to another way to improve my credit score to push it over 800 (here in Canada the score goes up to 835) and i am at 797
You will probably get a new inq. associated with your loan app, and if approved, a reduction in your AAoA.
I've been pre-approved for a LOC by my bank so i assume it wont pull down my score.
A line of credit (LOC) will most likely be scored like a CC as opposed to a loan. When you pay it off, it'll still factor into your CC utilization. Same goes for HELOCs too. FICO will tend to look at it funny and even score as a loan if the CL on the LOC is high (>$20k if I recall correctly) and is dependent on the FICO version used.
@Anonymous wrote:I've been pre-approved for a LOC by my bank so i assume it wont pull down my score.
Editing redundant post, above one pretty much says it all... other than to state: you're gold-plated already, there's too many possible downsides and not enough upsides. Why screw up a good thing?