topic Re: Credit Card Dept vs Installment loan in Understanding FICO® Scoring

Credit Card Dept vs Installment loan

ecxpa — Sun, 07 May 2017 01:58:56 GMT

Trying to help a friend with his credit he started rebuilding about a year ago and his CK scores are up to 708. He has about 8 cards with a 5K balance, none over 30%. Looking to buy a house next year after getting a new job. He is considering getting a consolidation loan to pay off the CC but will then have an installment acct with a 5K balance that he plans to pay off pretty quickly. Does paying off the CC help his scores or does the balance on the consolidation loan cancel any benefit?

Re: Credit Card Dept vs Installment loan

Revelate — Sun, 07 May 2017 02:30:07 GMT

Installment debt is way better than CC debt, but how quickly is he planning to pay off the loan?

Probalby makes more sense from a pure FICO perspective to simply just pay off the CC's directly if he's planning on hammering the balance anyway. Worth doing the math between loan APR and CC APR over the expected time period, but for short time periods, consolidation makes less sense.

Re: Credit Card Dept vs Installment loan

ecxpa — Sun, 07 May 2017 02:37:43 GMT

@Revelate wrote:
Installment debt is way better than CC debt, but how quickly is he planning to pay off the loan?

Probalby makes more sense from a pure FICO perspective to simply just pay off the CC's directly if he's planning on hammering the balance anyway. Worth doing the math between loan APR and CC APR over the expected time period, but for short time periods, consolidation makes less sense.

His game plan is to pay it off in a year; he says he can get a loan for about 7-8% which is way better than the CC debt rates of 17 -23%

Re: Credit Card Dept vs Installment loan

SouthJamaica — Sun, 07 May 2017 03:06:33 GMT

@ecxpa wrote:
Trying to help a friend with his credit he started rebuilding about a year ago and his CK scores are up to 708. He has about 8 cards with a 5K balance, none over 30%. Looking to buy a house next year after getting a new job. He is considering getting a consolidation loan to pay off the CC but will then have an installment acct with a 5K balance that he plans to pay off pretty quickly. Does paying off the CC help his scores or does the balance on the consolidation loan cancel any benefit?

They will more or less cancel each other out.

Re: Credit Card Dept vs Installment loan

SouthJamaica — Sun, 07 May 2017 03:09:10 GMT

@ecxpa wrote:
@Revelate wrote:
Installment debt is way better than CC debt, but how quickly is he planning to pay off the loan?

Probalby makes more sense from a pure FICO perspective to simply just pay off the CC's directly if he's planning on hammering the balance anyway. Worth doing the math between loan APR and CC APR over the expected time period, but for short time periods, consolidation makes less sense.
His game plan is to pay it off in a year; he says he can get a loan for about 7-8% which is way better than the CC debt rates of 17 -23%

If he can (a) pay the loan down to 9% of the original amount, and let it report, BEFORE applying for the mortgage, and (b) stop reporting balances on all but one of the credit cards, with the reporting card reporting only a small balance..... that would be great.

Re: Credit Card Dept vs Installment loan

Revelate — Sun, 07 May 2017 03:19:02 GMT

@SouthJamaica wrote:
@ecxpa wrote:
@Revelate wrote:
Installment debt is way better than CC debt, but how quickly is he planning to pay off the loan?

Probalby makes more sense from a pure FICO perspective to simply just pay off the CC's directly if he's planning on hammering the balance anyway. Worth doing the math between loan APR and CC APR over the expected time period, but for short time periods, consolidation makes less sense.
His game plan is to pay it off in a year; he says he can get a loan for about 7-8% which is way better than the CC debt rates of 17 -23%
If he can (a) pay the loan down to 9% of the original amount, and let it report, BEFORE applying for the mortgage, and (b) stop reporting balances on all but one of the credit cards, with the reporting card reporting only a small balance..... that would be great.

Doesn't help as much for a mortgage as it does for FICO 8, though if / when every little bit counts, yup.

That said, 10% over a year if that helps financially go do it. Should be neutral to some benefit FICO wise, and finances > FICO anyway.