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penalized for not having installment loan? what does this mean

Valued Contributor

Re: penalized for not having installment loan? what does this mean

Was just updated yesterday by a EQ score watch update.

 

My previous alert last month was a 693 (TU (here) is a 711)), and as of yesterday my EQ dropped to 665 with the only variable changing was "No installment loan"

 

That's a pretty significant hit, for not having an active loan.

5/2012: 560 credit scores across the board
12/2014 750+
3/2017 780+
5/2017 800+
Message 41 of 211
Established Contributor

Re: penalized for not having installment loan? what does this mean

Your score shouldn't drop because you don't have an installment loan. I get the same message on all three here - EX, EQ, TU as the only reason my score isn't higher. I know, however, that the reason is not quite accurate. I have more than a few INQs and a few other issues that I can adjust to increase my score (I let small balances report on cards with 0%APR promotion and then PIF).  


Starting Score: EX:570, 8/2011
Current
Scores(11/1/17):
EX08:827; EQ08:827,
TU08:818
Inqs(12 mo): EX/0, EQ/0, TU/2
Goal Scores: 800+
My Cards: BoA Rewards Visa: 20K, Discover IT: 43.3K, Barclays Arrival +: 13.3K, Citi Diamond Preferred: 23.1K, Amex PRG, Amex ED: 22.5K, Amex BCE: 20K, Chase Freedom: 21K, CSR: 35K, Amazon Store: 20K, Macys:4K, Diners Club Premier: 40K
Message 42 of 211
Valued Contributor

Re: penalized for not having installment loan? what does this mean


Repo-ed wrote:

Was just updated yesterday by a EQ score watch update.

 

My previous alert last month was a 693 (TU (here) is a 711)), and as of yesterday my EQ dropped to 665 with the only variable changing was "No installment loan"

 

That's a pretty significant hit, for not having an active loan.


There are other things happening on this site, notably a recent change in the EQ and TU scoring models, like this:

 

   EQ 04 -> EQ 08

 

   TU 98 -> TU 08

 

So it pays to be cautious when interpreting a changed score.

 

Message 43 of 211
Moderator

Re: penalized for not having installment loan? what does this mean


AzaleaB wrote:

Your score shouldn't drop because you don't have an installment loan. I get the same message on all three here - EX, EQ, TU as the only reason my score isn't higher. I know, however, that the reason is not quite accurate. I have more than a few INQs and a few other issues that I can adjust to increase my score (I let small balances report on cards with 0%APR promotion and then PIF).  


It's statistics: they don't always make sense from our own perspective; FICO is indifferent to our thoughts on the matter unfortunately, it's all in the data and not having open installment loans has been at least a small penalty for a while: it appears that under FICO 8 it's a lot larger one.  

 

I was only going for the handful of points by getting a couple more installment loans before my current ones drop off, but from recent data looks like I'm saving a lot more than that when it comes to FICO 8 scoring.

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 758, EX 2 758, EQ 8 795, TU 8 762, EX 8 786 (7/28/17)
Goal Score:    EQ 5 750, TU 4 750, EX 2 750, EQ 8 800, TU 8 Blah, EX 8 800 (01/01/18)


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Message 44 of 211
Valued Contributor

Re: penalized for not having installment loan? what does this mean


gen-specific wrote:

Update: Just got my alliant "shared secured" loan approved and it is in my savings account

 

See you in 2019 lmao

 

 

So that was an odd experience, I was able to do everything on the phone and online (even signed the loan agreement on docusign.com on my mobile phone), so that part was great

 

the weird part was that the guy on the phone initially called me saying it was weird to ask for $500 secured loan for 5 years and that they wouldn't give it to me and that I would get a followup call on the decision in a day

 

So two days later (today) I called them back because I never got the followup call, and the guy was like "oh hey" and just sent me the loan terms and legal contract to my email, I signed it in docusign and the loan is in my account, and auto pay is already set up, he did it

 

Smiley Very Happy

 

so whats next? a second installment loan? 

 

this was great because I was able to do this all in one week, any somehow my bank was able to do free electronic transfers in one day to fund alliant's savings account. saved a lot of time for a process like this

 

 

 

 

 


Hey! I applied for the $500 for 5 years loan but they wouldn't give it to me! My experience was very similar to yours. The guy wouldn't quit trying to upsell me. He wanted me to boost the loan price to be able to get the 5 year loan. I refused to do that so was only able to get a 4 year loan.

 

He didn't want to understand that I really didn't need the money but needed the loan to help my credit score!

 

I am going to wait and see how this reports and what affect it has on my scores, then open an account with SDFCU next month sometime and get a $500 shared loan with them.


Starting Score: EQ 653 6/21/12
Current Score: EQ 703 8/5/17 - EX 743 8/5/17 - TU 731 8/5/17
Message 45 of 211
Contributor

Re: penalized for not having installment loan? what does this mean

Does paying off an installment loan negatively affect your score in the same way? I may pay off my student loan, car loan and mortgage before applying for a new mortgage. And so for at least a few months may have no active installment loans - and just when scores matter most - when applying for a new mortgage. 

7/31/2015: EQ 830, TU 825, EX 822
Cash+, Amex BCP & BCE, Fidelity Visa, Chase Amazon & Freedom, Target RedCard
Message 46 of 211
Valued Contributor

Re: penalized for not having installment loan? what does this mean


psm wrote:

Does paying off an installment loan negatively affect your score in the same way? I may pay off my student loan, car loan and mortgage before applying for a new mortgage. And so for at least a few months may have no active installment loans - and just when scores matter most - when applying for a new mortgage. 


The biggest issue is if you don't have any installment loans on your reports as in my situation. I am leaving points on the table because I don't have ANY installment loan history.

 

You on the other hand will be in great shape. You want to pay those loans off before applying for a mortgage because they will otherwise count against your DTI. Even if you have just one month left on say a $300 a month auto loan, a strict lender may deduct $300 a month from your income that would otherwise be available for a mortgage payment.

 

You can read on these forums how people are suprised time and again that once they pay off an auto loan their scores stayed the same or dropped a few points when they thought they would see a bump because they reduced their debt. Getting your FIRST installment loan usually equals a small double digit bump, paying that loan off usually equals a score change of zero to minus ten points.

 

That's why these $500 loans are so attractive. They give your scores a small bump, build installment loan history, but the monthly payments are only $7 to $12 so really don't impact your DTI much. You can mortgage shop with a couple of these open on your report and still have a good DTI.

 

In your situation, I would suggest paying the loans off and waiting to see how that impacts your scores. You can always add one of these $500 shared loans to boost your scores if needed.


Starting Score: EQ 653 6/21/12
Current Score: EQ 703 8/5/17 - EX 743 8/5/17 - TU 731 8/5/17
Message 47 of 211
Valued Contributor

Re: penalized for not having installment loan? what does this mean


jamie123 wrote:

You want to pay those loans off before applying for a mortgage because they will otherwise count against your DTI. Even if you have just one month left on say a $300 a month auto loan, a strict lender may deduct $300 a month from your income that would otherwise be available for a mortgage payment.

 

I'll simply choose to stay clear of the likes of that.

 

Message 48 of 211
Contributor

Re: penalized for not having installment loan? what does this mean


my-own-fico wrote:

jamie123 wrote:

You want to pay those loans off before applying for a mortgage because they will otherwise count against your DTI. Even if you have just one month left on say a $300 a month auto loan, a strict lender may deduct $300 a month from your income that would otherwise be available for a mortgage payment.

 

I'll simply choose to stay clear of the likes of that.

 


You stay clear of mortgages or car loans?

7/31/2015: EQ 830, TU 825, EX 822
Cash+, Amex BCP & BCE, Fidelity Visa, Chase Amazon & Freedom, Target RedCard
Message 49 of 211
Highlighted
Valued Contributor

Re: penalized for not having installment loan? what does this mean

Well...I was just upgraded to FICO 08. It's actually a good thing because my $500 shared loan doesn't appear on the free report they gave me so we should be able to get a really good idea of what an installment loan will do to your scores.

 

To give you an idea of what my EQ score and report looks like:

 

FICO 04 = 675 6/13/2014

FICO 08 = 674 6/14/2014

 

Credit Cards Total 7 = 6 active, 1 closed, 2 are new (Less than 1 year), Oldest account 2 years 2 months.

UTI = 23% (I'm taking advantage of 0% on those new cards.)

 

Inquiries = 1 (4/2014)

 

Baddie = State Tax Lien from 2008

 

I usually just try and use most of my cards every month for day to day expenses and pay in full after the statement cuts not worrying about the reporting balances or number of cards reporting. When I tweak the reporting balances; all but one card reporting zero and the one card reporting <10%, I can get my scores up to 703 but no higher.

 

My first payment on the $500 shared loan isn't due until July 1st so it will probably be sometime after that when the loan will hit my reports.


Starting Score: EQ 653 6/21/12
Current Score: EQ 703 8/5/17 - EX 743 8/5/17 - TU 731 8/5/17
Message 50 of 211