"accounts opened in past year" - impact on score?

[Anonymous]

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johnpalley wrote:
boscoe, you said "If you use the FICO Score Estimator, you will see that your score suffers if you don't have a recent auto loan or mtg. Having this kind of debt is a requirement for entry into the High Achievers club." so if i got an auto loan instead of a secured loan my score would of went up instead of down? is this true or are you talkin about any type of loan? i thought a loan was a loan and it didnt matter what kind unless it was a mortgage.

Message Edited by johnpalley on 06-11-2008 01:46 PM

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You are correct.  A non-mortgage installment loan is a non-mortgage installment loan is a non-mortgage installment loan.

Reading your update posts, I am most concerned about the fact that you are getting new credit while attempting to get a mortgage.  This is frowned upon by mortgage lenders.  The general rule of thumb is to avoid all new accounts for at least six months prior to mortgage shopping.

[johnpalley]

cheddar, so since its frowned upon i should pay it off immediately right?

[Junejer]

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@Anonymous wrote:

Cheddar made the following comment earlier in this thread,

"...The longer you have had credit, the less of a risk you are. Why would that metric be limited to open accounts only?"

This would be great if it worked exactly like that. The literal definition FICO uses is "The older your oldest tradeline is, the less of a risk you are". I have had credit since 1985, but since my oldest TL is from 1995 (the 1985 account closed years ago is now dropped from my report), I apparently am more of a risk.

Congress needs to amend the FCRA to mandate that positive accounts stay on credit reports longer, say 20-25 years rather than 10. The way it is now hurts us when older positive TL's age off, whether it be revolving, installment or even mortgages. If you use the FICO Score Estimator, you will see that your score suffers if you don't have a recent auto loan or mtg. Having this kind of debt is a requirement for entry into the High Achievers club.

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Agreed. I say though, why have a limit to positive TLs at all, until the file gets to thick, then they should start breaking them off.

@Anonymous wrote:
"Having this kind of debt is a requirement for entry into the High Achievers club."

There are always exceptions to the rule. Psychic is in the 800s w/o any of that type of debt.

[Anonymous]

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johnpalley wrote:
cheddar, so since its frowned upon i should pay it off immediately right?

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Well, the damage is done.  Whether it is paid off immediately or not, it will still be considered a new account, which is what is frowned upon.

Paying it off should help your DTI, though, which is an important consideration in mortgage lending.  There are lots of mortgage experts on the Mortgages forum who can answer those questions better then those of us who hang out on this forum can.

[johnpalley]

Boscoe , if what you say is true then why did my score go down when i got the new loan? and i have no other recent loans in my cr. Message Edited by johnpalley on 06-11-2008 02:19 PM

Message Edited by johnpalley on 06-11-2008 02:21 PM

[Anonymous]

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johnpalley wrote:
ByrdMan , if what you say is true then why did my score go down when i got the new loan?

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Because new credit will always lower your average age of accounts, which in turn can lower your score.  The effect of new credit on one's score will always be the net of all the positives minus all the negatives.

In your case, you got points for credit mix and lost points for an inquiry and reaging.  In the end, that worked out to a loss of 6 points.

Depending on the other aspects of your file, it just as easily could have worked out to be a net positive.

Message Edited by cheddar on 06-11-2008 02:20 PM

[johnpalley]

cheddar, what would you do if you were me and you were in my situation. would you pay the whole loan off? in 2 months i need the highest score possible. thats my goal. and if you dont think that i should pay it off should i at least pay it down alot for the dti? Message Edited by johnpalley on 06-11-2008 02:25 PM Message Edited by johnpalley on 06-11-2008 02:27 PM Message Edited by johnpalley on 06-11-2008 02:28 PM

Message Edited by johnpalley on 06-11-2008 02:30 PM

[Anonymous]

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johnpalley wrote:
cheddar, what would you do if you were me and you were in my situation. and you know im trying to buy a house. would you pay the whole loan off? in 2 months i need the highest score possible. thats my goal.

Message Edited by johnpalley on 06-11-2008 02:25 PM

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I wouldn't pay it off right away.  As I said above, you most likely gained points for credit mix.  Paying it off will cause you to lose those points once the installment loan reports as closed, but it will not get you back the points you lost for obtaining new credit.

I would, however, let the mortgage broker know that you are able to pay it off immediately if that will make a difference for them.

[johnpalley]

cheddar, what about paying it down 75%? wouldnt that increase my score?

[Anonymous]

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johnpalley wrote:
cheddar, what about paying it down 75%? wouldnt that increase my score?

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Most likely not.  FICO does score installment utilization similar to the way it scores revolving utilization, but the effect of installment utilization on one's score is very, very small.