I will offer my opinion, and reasons, for I have done this very thing, and received a substantial FICO boost along with lower overall interst payments in the process. But it requiries the analysis of her personal situation, for no action is best for all. The answer is not as simple as a yes or no. It depends on many factors.
First, aside from the %util factors, does she have any other installment loans? If not, she is probably currently taking a hit in the FICO %credit mix category, and getting an installment loan will improve in that category. Remember, actions taken affect more than just one FICO category. While credit mix is admittedly only 10% of total FICO, and %util is 30% of FICO, most of the 30% is revolving,and not installmen, utilization. So shifting %util to installment rather than revolving util may in fact help. As we are all aware, the hit for higher install %util is much less than for higher % revol util, and my experience has shown it is by a factor of about three to one.
But then another factor enters in. When do you plan to apply for new credit? Getting a new installment loan, providing you are lucky enough to get in on her first applic., will cost her at least one new hard inquiry in the new credit category, and thus cost an intial hit of close to ten points, but this will go away in one year. So if new credit is not to be sought within the next year, the new inquiry is a wash.
As for a BT, while a BT may be immediately attractive, most BTs default to the normal credit card rate after a short intro period, and requrie a BT fee of 3% to 4% of the BT when initially made. And this is NOT related to annual APR, it is a straight and immediate hit to the groin. Even if you pay it off in 6 months, it is the same as paying a 6-8% interest rate over that period, even though they dont call it that. So again, when can the BT be paid off? If the new install loan is at a comparable rate, then no BT fee is involved, and no threat of defaulting to the normal credit card rate hangs over her. You get a guarantedd install %APR for the term of the loan, which will normally be at least two years.
So, look at all these factors, some affecting FICO, some affecting interest paid, and some based on when you need to apply for additional new credit, for it is only then that FICO has any meaning. I looked at them all, and benefited from the new iinstall loan option to pay of existing CC debt. But I got an install loan at a comparable rate, avoided the BT fees, and was not planning to apply for new credit within a year. FICO went down the first month, as the new inq. hit fast, and the new loan took a couple of months to post. So, again, is your immediate FICO score (within the next six months) important, or can you take the combined benefits six months from now without having to rely upon it for anything more than ego.
Good luck!
Message Edited by RobertEG on
01-30-2008 09:02 PMMessage Edited by RobertEG on
01-30-2008 09:09 PMMessage Edited by RobertEG on
01-30-2008 09:27 PM
