Will taking an installment loan improve my score?

Anonymous · ‎05-08-2007

I currently have 5 TL's, all revolving credit with low or $0 balances, th oldest of which has been open for about 8 years. Total credit limit is around $16,000. I have no installment credit history, however, because I've never needed it; I've always paid cash for cars.

I'm in the market for a new car right now, and I could pay cash for this one as well, but I'm thinking of taking an installment loan for all or part of it, in order to create a mix of credit types and a history of installment loans. This will also keep my cash free for other things.

Will taking an installment loan in my situation help, hurt, or have no effect on my FICO, both short term and long term?

Tuscani · ‎05-08-2007

Yes, FICO likes to see a good mix of credit.

Boswd · ‎05-08-2007

As pointed out, the answer is yes this can help your credit score. But, why? Is my question. If you have to ability to pay the car in full, why incurr debt for just the sake of watching your credit score? Are you're scores in the toilet? And if so they are safer ways to improve your score, such as a secured credit card and such. If you don't have to take on any new debt, why would you?

Of course most of us do have to take on a car loan but I would give my first born to be able to pay for a car upfront.

I just think it's one of the silliest/foolish things people do is to take on unnecessary debt just to watch their credit score. I believe people's first priority, should be as close to debt free first and worry about your credit score if it's in the toilet. It blows my mind people just take on debt for sake of the ALMIGHT FICO.

Tuscani · ‎05-08-2007

Boswd wrote:
As pointed out, the answer is yes this can help your credit score. But, why? Is my question. If you have to ability to pay the car in full, why incurr debt for just the sake of watching your credit score? Are you're scores in the toilet? And if so they are safer ways to improve your score, such as a secured credit card and such. If you don't have to take on any new debt, why would you?
Of course most of us do have to take on a car loan but I would give my first born to be able to pay for a car upfront.
I just think it's one of the silliest/foolish things people do is to take on unnecessary debt just to watch their credit score. I believe people's first priority, should be as close to debt free first and worry about your credit score if it's in the toilet. It blows my mind people just take on debt for sake of the ALMIGHT FICO.

You are reading too much into adding installement accounts to increase credit. No one is recommending people buy new cars and houses just to get a better mix of credit. Getting an installment tradeline is a easy as a small $500 personal loan from your local bank. Use that $500 to make five $100 payments. Obviously, this is only one example of how you can get installment history without making a huge purchase.

Boswd · ‎05-08-2007

I understand what you are saying, I just think that if you don't have to take on debt, then why do it, unless your score is really bad and it is a good healing process. but if your score is good then taking on any sort of debt whether it be $500 or more just to build your FICO portfolio, to me is silly. If you can pay for the car upfront, then I would just do it. No matter how you slice it, you will end up paying more money because of interest when you take out a loan.

But I do believe many people get soo caught up in watching their scores that they lose track of what is really important and living as close to debt free and being able to use your money else where, from investing to savings I think is more important than looking for a point jump in your FICO score especially if it is already good. In the grand scheme of things your FICO score is at it's most important when you are either looking for a car or looking for a home, most other times it's very trival such as a credit card. If you have the money to pay upfront, I just think that is the best way and use the money you would have lost due to interest and put it towards something more usefull in life.

Anonymous · ‎05-08-2007

>>>As pointed out, the answer is yes this can help your credit score. But, why? Is my question. If >>>you have to ability to pay the car in full, why incurr debt for just the sake of watching your credit score?

Because I want to buy my first house in the next year or two, and I want to both qualify for the best rates and there be no question of me qualifying. One correctable weakness in my report is the lack of installment credit history. Also, as I mentioned, I have other things I can put the cash towards if I'm not spending it on a car.

>>> Are you're scores in the toilet?

No, but they could be better. I'm at 708 TU, 710 EX, and for some reason EQ has me at 685.

>>> And if so they are safer ways to improve your score, such as a secured credit card and such. If you don't have to take on any new debt, why would you?

A secured card would do nothing for me, as I already have unsecured cards with reasonably high limits.

>>>Of course most of us do have to take on a car loan but I would give my first born to be able to pay for a car upfront. I just think it's one of the silliest/foolish things people do is to take on unnecessary debt just to watch their credit score. I believe people's first priority, should be as close to debt free first and worry about your credit score if it's in the toilet. It blows my mind people just take on debt for sake of the ALMIGHT FICO.

I have little or no outstanding debt or debt utilization, so taking on a little debt isn't really an issue for me. Sure, I'd rather not be paying the interest, but is a small, short-term car loan now will make it easier for me to get a house in a year, I'm thinking it will be worth it. If anyone thinks there are any flaws in my plans given my situation, please let me know.

smallfry · ‎05-08-2007

@Boswd wrote:
I understand what you are saying, I just think that if you don't have to take on debt, then why do it, unless your score is really bad and it is a good healing process. but if your score is good then taking on any sort of debt whether it be $500 or more just to build your FICO portfolio, to me is silly. If you can pay for the car upfront, then I would just do it. No matter how you slice it, you will end up paying more money because of interest when you take out a loan.
But I do believe many people get soo caught up in watching their scores that they lose track of what is really important and living as close to debt free and being able to use your money else where, from investing to savings I think is more important than looking for a point jump in your FICO score especially if it is already good. In the grand scheme of things your FICO score is at it's most important when you are either looking for a car or looking for a home, most other times it's very trival such as a credit card. If you have the money to pay upfront, I just think that is the best way and use the money you would have lost due to interest and put it towards something more usefull in life.

Nothing wrong with a small passbook loan.

Anonymous · ‎05-08-2007

>>> Nothing wrong with a small passbook loan.

I was thinking about a car loan not only because I'm buying a car anyway, but I figures since a car loan is a secured loan, the interest rate would be lower and there would be no question about getting approved.

Is this right, or am I off base?

Boswd · ‎05-08-2007

Honestly you know what you should do? Print out all three of your Credit Reports and scores and set up a meeting with your mortgage lender, your personal bank or whoever you are thinking of using and bring that in. Have him/her look it over and they should be able to explain what rates you qualify for and what you may need to qualify for a better interest rate. Judging by your scores your should have no problem qualifying for a Prime interest rate. Plus mortgage lenders look at everything and having a low debt to income ratio with your scores is a big plus.

But yeah have the experts tell what you would need to know.

Anonymous · ‎05-08-2007

>>>>Honestly you know what you should do? Print out all three of your Credit Reports and scores and set up a meeting with your mortgage lender, your personal bank or whoever you are thinking of using and bring that in. Have him/her look it over and they should be able to explain what rates you qualify for and what you may need to qualify for a better interest rate. Judging by your scores your should have no problem qualifying for a Prime interest rate. Plus mortgage lenders look at everything and having a low debt to income ratio with your scores is a big plus.

But yeah have the experts tell what you would need to know.

Well, something as simple as an inquiry or two will take me down into the 600's on all three, so my scores aren't really "that" good. Plus 720 seens to be the cutoff for really good rates at a lot of banks.

But, what you say makes sense.... I should just ask the lender.