penalized for not having installment loan? what does this mean

[Anonymous]

This is MADDENING.  I was fortunate to pay for my home in cash, so no mortgage history.  I also paid off my car loan early as well.  I mean, regardless of how much or how little why pay interest????  I would like to be rewarded for being debt free, but the formula clearly does not.

My most recent myFICO checkup yesterday showed "flags" (<-- for lack of better words) for not having installment loans or any type.  When I have had installment loans they were always on time, no lates, and each month paid more than the payment required.

[HiLine]

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@Anonymous wrote:

This is MADDENING.  I was fortunate to pay for my home in cash, so no mortgage history.  I also paid off my car loan early as well.  I mean, regardless of how much or how little why pay interest????  I would like to be rewarded for being debt free, but the formula clearly does not.

My most recent myFICO checkup yesterday showed "flags" (<-- for lack of better words) for not having installment loans or any type.  When I have had installment loans they were always on time, no lates, and each month paid more than the payment required.

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To be fair, when you were paying these you got a score boost. When you stop paying, the score boost is taken away.

[lord_kinbote]

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@Anonymous wrote:

This is MADDENING.  I was fortunate to pay for my home in cash, so no mortgage history.  I also paid off my car loan early as well.  I mean, regardless of how much or how little why pay interest????  I would like to be rewarded for being debt free, but the formula clearly does not.

My most recent myFICO checkup yesterday showed "flags" (<-- for lack of better words) for not having installment loans or any type.  When I have had installment loans they were always on time, no lates, and each month paid more than the payment required.

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Love it or hate it - It's the way the game is played.  Mix of credit is only 10% of your score, so the impact should not be "maddening".  Take a look at below URL for more specifics;

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

I don't have a car loan and my mortagage was paid off almost 8 years ago.  I added a share secured loan via Alliant CU for a 4 year period (SP to join/open loan) - that will end up costing me about 40-50 dollars over 4 years.  So IMO, well worth the expense to colllect the 10% off the table.

[Anonymous]

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@akula wrote:

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@Anonymous wrote:

This is MADDENING.  I was fortunate to pay for my home in cash, so no mortgage history.  I also paid off my car loan early as well.  I mean, regardless of how much or how little why pay interest????  I would like to be rewarded for being debt free, but the formula clearly does not.

My most recent myFICO checkup yesterday showed "flags" (<-- for lack of better words) for not having installment loans or any type.  When I have had installment loans they were always on time, no lates, and each month paid more than the payment required.

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Love it or hate it - It's the way the game is played.  Mix of credit is only 10% of your score, so the impact should not be "maddening".  Take a look at below URL for more specifics;

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

I don't have a car loan and my mortagage was paid off almost 8 years ago.  I added a share secured loan via Alliant CU for a 4 year period (SP to join/open loan) - that will end up costing me about 40-50 dollars over 4 years.  So IMO, well worth the expense to colllect the 10% off the table.

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My wording was a bit strong on maddening, but thank you.  I know it is "how the FICO game is played", and I even get it for the most part, I just have always had a goal of truly debt free life and having total ownership of all assets.  Thank you for the Alliant CU mention and going to look into that.

[jamie123]

Just to bring up a point that hasn't been mentioned here in a while...

If you don't have any installment loan history on your reports it can be difficult to be approved for an auto loan or mortgage at the best rates no matter what your scores are. Having a shared secured loan boosts your SCORES and HISTORY.

That's why it pops up as a negative indicator if you don't have installment loan history on your reports. LENDERS WANT TO SEE INSTALLMENT LOAN HISTORY.

Now, I get that a $500 shared secured loan is kinda cheating the system a bit, but it is the most cost effective method to get and keep an installment loan on your reports..

[pdxmike]

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@Revelate wrote:

I've never heard the term refunding: I get what the loan agent was attempting to state, but I've never heard of a lender doing that as it sounds like some funky secured LOC rather than installment loan.

Some searching leads me to believe that this is more commonly called renewing a loan, or a loan renewal. So if you're at a CU that won't do a small loan for a long term, ask if there's an option to renew a shorter-term loan near its maturity date to keep the tradeline active, and if there's a limit to the renewals. Also, make sure the CU will report the loan to all three bureaus. Some CUs have cards that report to all three, but their loans report to one or none.

[mitchblue]

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@jamie123 wrote:

Just to bring up a point that hasn't been mentioned here in a while...

If you don't have any installment loan history on your reports it can be difficult to be approved for an auto loan or mortgage at the best rates no matter what your scores are. Having a shared secured loan boosts your SCORES and HISTORY.

That's why it pops up as a negative indicator if you don't have installment loan history on your reports. LENDERS WANT TO SEE INSTALLMENT LOAN HISTORY.

Now, I get that a $500 shared secured loan is kinda cheating the system a bit, but it is the most cost effective method to get and keep an installment loan on your reports..

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That makes sense. 

[Imperfectfuture]

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@mitchblue wrote:

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@jamie123 wrote:

Just to bring up a point that hasn't been mentioned here in a while...

If you don't have any installment loan history on your reports it can be difficult to be approved for an auto loan or mortgage at the best rates no matter what your scores are. Having a shared secured loan boosts your SCORES and HISTORY.

That's why it pops up as a negative indicator if you don't have installment loan history on your reports. LENDERS WANT TO SEE INSTALLMENT LOAN HISTORY.

Now, I get that a $500 shared secured loan is kinda cheating the system a bit, but it is the most cost effective method to get and keep an installment loan on your reports..

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That makes sense. 

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And with CU rates so low on secured loans, makes TONS more sense to finance some purchases (or pay down balances) using a secured loan (if you have the savings).  The rates are akin to the best mortgage or auto score rates, if not lower.  Better than heloc or borrowing against retirement.

[mitchblue]

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@Imperfectfuture wrote:

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@mitchblue wrote:

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@jamie123 wrote:

Just to bring up a point that hasn't been mentioned here in a while...

If you don't have any installment loan history on your reports it can be difficult to be approved for an auto loan or mortgage at the best rates no matter what your scores are. Having a shared secured loan boosts your SCORES and HISTORY.

That's why it pops up as a negative indicator if you don't have installment loan history on your reports. LENDERS WANT TO SEE INSTALLMENT LOAN HISTORY.

Now, I get that a $500 shared secured loan is kinda cheating the system a bit, but it is the most cost effective method to get and keep an installment loan on your reports..

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That makes sense. 

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And with CU rates so low on secured loans, makes TONS more sense to finance some purchases (or pay down balances) using a secured loan (if you have the savings).  The rates are akin to the best mortgage or auto score rates, if not lower.  Better than heloc or borrowing against retirement.

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I'm curious does a secured loan/personal loan count less than say a auto loan or mortgage? Thanks.

[Ubuntu]

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@mitchblue wrote:

I'm curious does a secured loan/personal loan count less than say a auto loan or mortgage? Thanks.

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Possibly but it will depend on what you're applying for. Certain industries have separate scoring systems that apply specifically to their industry. Auto lenders value previous auto loans and leases very highly when reviewing your report. Mortgage lenders also give great weight to those who have or have had a mortgage. These factors are more likely to affect lenders decision's than they will affect your FICO score.

The affect of a new loan can vary quite a bit depending on the age, thickness, and specific content of your report.

In general a mortgage loan is probably the single most positive item for a credit report because it displays your ability to obtain and manage a large loan over a long period.

That said any car or personal loan is definitley a benefit to your score. I don't know whether there is any difference between a secured and unsecured personal loan. There shouldn't be one, or much of one, because auto and mortgage loans are also technically secured loans but someone else may have better information on that.

One other thing to note just for the record is that many people who have auto or other installment loans tend to see their scores drop when the loans are paid off even though the loans still appear on your report. I would guess that has something to do wth statistics but can't be certain of that.