topic Just got my first Auto Loan in Understanding FICO® Scoring

Just got my first Auto Loan

mysterythemoon — Wed, 28 Dec 2016 23:13:37 GMT

Simple question: Will it hurt, help, or have no impact on my credit score once it hits my reports in a few weeks? I ask because I'd like to garden for a few years with the cards I've picked up recently, and I'd like to add one more card before I do said gardening. Trying to figure out when the best time would be to apply... before or after the car loan hits my reports. Thanks!

Re: Just got my first Auto Loan

SouthJamaica — Wed, 28 Dec 2016 23:32:40 GMT

@mysterythemoon wrote:
Simple question: Will it hurt, help, or have no impact on my credit score once it hits my reports in a few weeks? I ask because I'd like to garden for a few years with the cards I've picked up recently, and I'd like to add one more card before I do said gardening. Trying to figure out when the best time would be to apply... before or after the car loan hits my reports. Thanks!

If it's your only loan it will definitely hurt your scores, so the answer is.... before!!!

Re: Just got my first Auto Loan

Anonymous — Wed, 28 Dec 2016 23:42:08 GMT

Do you have any installment loans of any kind, closed or open? If you have never had an installment loan of any kind before, then your Credit Mix category will be improving.

There will be an AAoA impact when the loan hits, but it's possible that might not affect your score at all. It depends on what your current AAoA is and how many accounts total you have (closed and open).

Re: Just got my first Auto Loan

SouthJamaica — Thu, 29 Dec 2016 00:14:36 GMT

@Anonymous wrote:
Do you have any installment loans of any kind, closed or open? If you have never had an installment loan of any kind before, then your Credit Mix category will be improving.

There will be an AAoA impact when the loan hits, but it's possible that might not affect your score at all. It depends on what your current AAoA is and how many accounts total you have (closed and open).

You're overlooking the fact that he will have 100% installment loan utilization, which is killer to his FICO 8 scores, which are the most likely scores to be pulled for his credit card application.

Re: Just got my first Auto Loan

Anonymous — Thu, 29 Dec 2016 03:32:11 GMT

Hi SJ. I'm not overlooking that. Our OP is not going from an open loan with low utilization to an open loan at 100%. This would make the installment util factor very relevant. He's going from no open loans at all to an open loan at 100%. In the scenario I asked him about, he had in fact no loans of any kind, including closed ones.

With a 90+% util on his installment debt, he'll be getting no scoring bonus for the installment utilization factor (you get the bonus for having open I-debt that is mostly but not entirely paid off). With no installment loans of any kind (open or closed) he's also not getting that scoring bonus -- but he's also getting penalized in his credit mix category, which he won't be once he has a mix of both installment and revolving accounts.

There's a lot of factors in play here:

Possible absence of any installment accounts of any kind, closed or open

Hit to his AAoA, which may or may not result involve a scoring hit, especially if the AAoA does not cross an integer value

Possible new account penalty (age of youngest account), which may not involve a scoring hit, if he already has a fairly new account

Without more information from the OP (on all three factors) it's hard to say with any certainty what will happen.

Re: Just got my first Auto Loan

SouthJamaica — Thu, 29 Dec 2016 04:51:39 GMT

@Anonymous wrote:
Hi SJ. I'm not overlooking that. Our OP is not going from an open loan with low utilization to an open loan at 100%. This would make the installment util factor very relevant. He's going from no open loans at all to an open loan at 100%. In the scenario I asked him about, he had in fact no loans of any kind, including closed ones.

With a 90+% util on his installment debt, he'll be getting no scoring bonus for the installment utilization factor (you get the bonus for having open I-debt that is mostly but not entirely paid off). With no installment loans of any kind (open or closed) he's also not getting that scoring bonus -- but he's also getting penalized in his credit mix category, which he won't be once he has a mix of both installment and revolving accounts.

There's a lot of factors in play here:
     Possible absence of any installment accounts of any kind, closed or open
     Hit to his AAoA, which may or may not result involve a scoring hit, especially if the AAoA does not cross an integer value
     Possible new account penalty (age of youngest account), which may not involve a scoring hit, if he already has a fairly new account

Without more information from the OP (on all three factors) it's hard to say with any certainty what will happen.

Fair enough

Re: Just got my first Auto Loan

newhis — Thu, 29 Dec 2016 06:19:25 GMT

DW got her auto loan when her secured loan was at 50% (it was only for 1 year, didn't know about Alliant back then).

Then the auto loan reported 100% and her TU FICO didn't change.

Re: Just got my first Auto Loan

mysterythemoon — Thu, 29 Dec 2016 17:40:49 GMT

I have never had a loan of any kind before. My AAoA is 5 months. I had no credit cards and many collections in July. Fast forward to now and I have 2 secured CCs opened in July for 200 each, and I was just accepted for CSP, Blue Cash, and a NFCU Cash Rewards, totaling about 9k in available credit. Also, all the baddies Ive been lucky enough to get removed.

Re: Just got my first Auto Loan

Anonymous — Thu, 29 Dec 2016 19:46:31 GMT

@mysterythemoon wrote:
I have never had a loan of any kind before. My AAoA is 5 months. I had no credit cards and many collections in July. Fast forward to now and I have 2 secured CCs opened in July for 200 each, and I was just accepted for CSP, Blue Cash, and a NFCU Cash Rewards, totaling about 9k in available credit. Also, all the baddies Ive been lucky enough to get removed.

So let's go through the reasons that the car loan could cause your score to drop:

* AAoA drop. While it is true that your AAoA will drop, it is currrently at 0 years 5 months. You wouldn't get any AAoA benefit until it crossed 1 year (and possibly not then). So AAoA is not a valid reason to fear a score drop from the loan.

* Age of newest account. If you had not opened a new account in a while, then opening a new account (the car loan) might conceivably cause you to be rebucketed or otherwise affect your score when it hit your report. But you have already opened a bunch of accounts recently. So this is not a valid concern either.

* Installment utilization. If you had an open installment loan and most of your I-debt was paid off, and if the original amount of the debt was small, then the car loan appearing would cause your installment utilization to go from a small % (very good for your score) to a high %. You'd lose the bonus you were getting for the mostly paid off installment debt. But none of this is true. You don't have any open installment loans and therefore are not getting a scoring bonus for having paid most of it off.

Now let's go through the reasons it might make sense to wait (not apply for the card right away):

* Credit Mix. Right now you are being penalized for having no installment loans of any kind on your report, closed or open. When the car loan appears, you will get a benefit in this scoring category, because you will have both installment and revolving accounts.

* Derogs. Although all of your derogs have in theory been removed, two of your three bureaus have yet to update their databases. Therefore by waiting you should be getting a huge boost in 2 out of the 3 bureaus, once the derogs have been fully removed.

As far as I can see, all of the above appears to counsel waiting for a couple months, and applying for the card once all the dust settles. Then as per your plan, garden for a long time. While you are waiting, you can certainly get your CC balances optimized, which would be one card reporting with a small balance and all other cards reporting at $0. The one card reporting should be a true credit card and not a charge card.

Re: Just got my first Auto Loan

mysterythemoon — Fri, 30 Dec 2016 20:32:54 GMT

Wait I shall. Thanks for such a detailed layout.