topic Re: Types Of Installment Loans in Understanding FICO® Scoring

Types Of Installment Loans

credit_endurance — Wed, 28 Jun 2017 12:54:00 GMT

Hey forum,

I was just wondering about the affect of installment loans on your credit report. When I check my scores through myfico, CCT, WalletHub, Amex website etc. the most common verbage that I see is "loan balances to high" as a factor that is affecting my scores. But the thing is, my one and only loan which is a (personal) taken out about 2 years ago for $5,000 is paid down to $3,048 rougly still owing which you very well could consider "high" but for only a $5k loan? What gives?

So my question is, does different types of loans like (personal, debt consolidation, SSL, HELOC, PLOC, etc) affect your scores differently? Depending on the type of loan? And would it be advisable to take out another "better APR" personal loan to pay off my current one & to bring down my credit card balance?

Re: Types Of Installment Loans

Anonymous — Wed, 28 Jun 2017 14:02:47 GMT

Your questions have two parts. One part is purely practical. I.e. what steps should I take to improve to my score, especially as regards amounts owed on loans and credit cards.

The other part is more conceptual and theoretical. Asking whether it is possible that certain FICO models might score one type of loans a bit differently from others -- that's an example of a theory question.

I am separating the two kinds of questions because you don't have to know the theory stuff to get practicial answers about what to do.

PRACTICAL:

Credit cards. You want to pay off all your CC debt entirely, and then continue to have one card report a small balance each month.

Loan. You want to pay off most of that loan but not all of it. You want the balance on the loan to be < 9% of the original amount of the loan. If you get to a place where it looks like the loan will get paid off in entirety, we'll suggest a technique that allows you to keep an open loan on your profile at all times where almost all of your open debt is paid off. That technique only helps when you are close to having all open debt paid off. We can explain that if you want.

Paying off credit cards will get you more scoring and financial benefit than paying down your loan. We can give you better guidance if we know the complete picture regarding all your cards (their limits and balances) and your loans.

THEORY

The theory questions are more complicated and there is not unanimous agreement on them. Some people think that mortgages are scored a bit differently than other installment loans, for example. If you want me to give you a simplified overview of how FICO scores revolving and installment debt, I can do that, but it won't change the practical advice above.

Re: Types Of Installment Loans

credit_endurance — Wed, 28 Jun 2017 14:58:21 GMT

Sure I would appreciate that.

First for the simple thing the loan: Through my local credit union 2 years old as of May 15, 2017 payments per month $158.00 - APR 17.49- $5,000 - 48 month term

I have paid it down to $3,048 still owed out of the $5k. No penalty for PIF early. If I would pay it down to say like $460.00 left that should put me around the 9% threshold but, with a monthly payment of $158.00 it would be paid off to soon so need advice on how to stretch the life of this loan out to maximize scores.

Re: Types Of Installment Loans

Anonymous — Wed, 28 Jun 2017 14:20:54 GMT

@credit_endurance wrote:
Hey forum,

I was just wondering about the affect of installment loans on your credit report. When I check my scores through myfico, CCT, WalletHub, Amex website etc. the most common verbage that I see is "loan balances to high" as a factor that is affecting my scores. But the thing is, my one and only loan which is a (personal) taken out about 2 years ago for $5,000 is paid down to $3,048 rougly still owing which you very well could consider "high" but for only a $5k loan? What gives?

So my question is, does different types of loans like (personal, debt consolidation, SSL, HELOC, PLOC, etc) affect your scores differently? Depending on the type of loan? And would it be advisable to take out another "better APR" personal loan to pay off my current one & to bring down my credit card balance?

First off, solid words from CGID in the previous post.

What I think is most important to understand here is that installment loans in the eyes of FICO and scoring are considered based on their utilization, not dollars. It's very common for people to assume that dollar amounts matter in terms of scoring... for installment loans and revolving accounts too for that matter. While dollars may be considered in part upon a manual review, they are not considered by the FICO algorithm. Based on the dollar amounts you gave in the original post, your installment loan sits at 61% utilization, which is pretty high. Once you get it below 50% you may see those reason codes go away. Just like revolving accounts, there are thresholds with installment loan utilization. Some believe, myself included, believe that mortgages are viewed slightly different than other installment loan types in that if you get it below 70%-80% utilization it may be "considerably paid down" by FICO. My mortgage around 74% utilization stopped giving me negative reason codes and I started getting positives saying, "substantial installment loan repayment."

Anyway, the biggest takeaway here is that dollars aren't important, utilization is when talking installment loans. You could drop a zero from your numbers above and if you owed $305 on a $500 loan you'd be in the same exact place with the same score and reason code. Conversely, you could add a zero to your original numbers and if you owed $30,480 on a $50,000 loan that would be viewed the same as well. Hopefully this helps!

Re: Types Of Installment Loans

credit_endurance — Wed, 28 Jun 2017 14:56:36 GMT

Next the credit cards: I currently have 19 open revolving lines. I have closed a total of 8 cards this past year.

Open cards: BOA cash rewards $7779/16,600 (strickly a BT card ) 48 percent usage reported

NFCU Gorewards/Platinum Visa $0/17,500- $0/22,000

PenFed Platinum Visa Siggy $0/30,000

Chase Ritz Carlton Visa Infinite $0/20,000

Chase Hyatt Visa $0/8000

Discover IT $0/3,600 (recently used for a BT offer but on chopping block due to high APR)

CiTi DC $0/3,500 (Looking to raise this limit via a HP only one cli in a year)

BancoPopluar $0/25,000

Amex BCE $0/2,000

Amex BCP $0/10,000

Amex PGR NPSL

Lowes $0/17,000

Care Credit $0/18,000

Amazon StorePrime $0/10,000

Walmart Store Card $0/6000 (on chopping block due to non usage)

Barclay Ring Mastercard $0/7,500 ( used a my go to BT w/8.25 APR need to get a CLI on this one though for the long haul)

Don't laugh at me Credit One Bank $0/1,150 (Keeping this puppy around for the history 2nd card in my rebuild and oldest currently opened reporting) And usually reports a small balance every month so this card could be the one I use to maximize my scores when everything else reports $0.)

NFCU CLOC $0/15,000

PenFed PLOC $0/10,000

These are the ones that come off the top of my head. I will add more if needed. But as you can see here only BOA is reporting the balance. I would like to do some more tweaking of my profile please advise. Thanks

Re: Types Of Installment Loans

Anonymous — Wed, 28 Jun 2017 15:00:24 GMT

@credit_endurance wrote:
Sure I would appreciate that.

First for the simple thing the loan: Through my local credit union 2 years old as of May 15, 2017 payments per month $158.00 - APR 17.49- $5,000 - 48 month term
I have paid it down to $3,048 still ownung out of the $5k. No penalty for PIF early. If I would pay it down to say like $460.00 left that should put me around the 9% threshold but, with a monthly payment of $158.00 it would be paid off to soon so need advice on how to stretch the life of this loan out to maximize scores.

You don't want to be around the 9% threshold. You want to be less than the 9% threshhold. $460 will be greater than 9%. So figure out what 9% is and then you'd want to pay it down to at least $1 less than that.

It's quite possible that your lender will not require you to make monthly payments once you have paid the loan balance way down. Such lenders call this "pre-paying" the loan and what they do is to push the next due date way into the future. Call your lender and ask them how they would handle that.

If you do get into a situation where it looks like the loan will get paid off early, then you will want to implement something called the Share Secure Loan Technique. You can read about it here. You only need to read the first 2-3 posts. The second post will also give you the answer to the "theory" question about how FICO scores installment debt.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secure-technique/m-p/4506756

Bear in mind that paying down installment debt helps you less than paying off your credit cards. (You'll still have one card reporting a small balance.) Depending on how high your CC utilization is, the paydown of CC debt could help you MUCH more.

Re: Types Of Installment Loans

credit_endurance — Wed, 28 Jun 2017 15:05:04 GMT

@Anonymous wrote:
@credit_endurance wrote:
Hey forum,

I was just wondering about the affect of installment loans on your credit report. When I check my scores through myfico, CCT, WalletHub, Amex website etc. the most common verbage that I see is "loan balances to high" as a factor that is affecting my scores. But the thing is, my one and only loan which is a (personal) taken out about 2 years ago for $5,000 is paid down to $3,048 rougly still owing which you very well could consider "high" but for only a $5k loan? What gives?

So my question is, does different types of loans like (personal, debt consolidation, SSL, HELOC, PLOC, etc) affect your scores differently? Depending on the type of loan? And would it be advisable to take out another "better APR" personal loan to pay off my current one & to bring down my credit card balance?
First off, solid words from CGID in the previous post.

What I think is most important to understand here is that installment loans in the eyes of FICO and scoring are considered based on their utilization, not dollars. It's very common for people to assume that dollar amounts matter in terms of scoring... for installment loans and revolving accounts too for that matter. While dollars may be considered in part upon a manual review, they are not considered by the FICO algorithm. Based on the dollar amounts you gave in the original post, your installment loan sits at 61% utilization, which is pretty high. Once you get it below 50% you may see those reason codes go away. Just like revolving accounts, there are thresholds with installment loan utilization. Some believe, myself included, believe that mortgages are viewed slightly different than other installment loan types in that if you get it below 70%-80% utilization it may be "considerably paid down" by FICO. My mortgage around 74% utilization stopped giving me negative reason codes and I started getting positives saying, "substantial installment loan repayment."

Anyway, the biggest takeaway here is that dollars aren't important, utilization is when talking installment loans. You could drop a zero from your numbers above and if you owed $305 on a $500 loan you'd be in the same exact place with the same score and reason code. Conversely, you could add a zero to your original numbers and if you owed $30,480 on a $50,000 loan that would be viewed the same as well. Hopefully this helps!

So I think i know what your saying. If i would go take out another loan for a more substantial amount my scoring wont maximize itself until that loan is paid down to the ideal 9% threshold? My plan was to take out another personal loan to pay off the original one currently reporting and to pay down the 48% BOA reporting. In the short term it would give me the boost but, in the long term I would need to pay the new loan back down to the threshold to see or maintain maximum benefit?

Re: Types Of Installment Loans

Anonymous — Wed, 28 Jun 2017 15:48:39 GMT

@credit_endurance wrote:

So I think i know what your saying. If i would go take out another loan for a more substantial amount my scoring wont maximize itself until that loan is paid down to the ideal 9% threshold? My plan was to take out another personal loan to pay off the original one currently reporting and to pay down the 48% BOA reporting. In the short term it would give me the boost but, in the long term I would need to pay the new loan back down to the threshold to see or maintain maximum benefit?

There may not be a huge difference in installment loan utilization across the different thresholds... meaning you don't necessarily have to get your installment loan to under 9% to see most of the benefit of having it present on your credit report. There may be 5 points different, for example, in being at 8% verses 28% on your installment loan. It could only be 1 point. I'm not sure we have many data points on this.

CGID, this actually makes me think of a pretty cool topic which I will start a thread on in a few minutes. It would be awesome if someone took on a SSL and paid it down not to under 9% immediately, but down to just below commonly believed thresholds over the course of several months to see if we could better identify not only the break points, but also the point gains associated with the different thresholds.

bruisedcredit, back to your question. Again, installment loan utilization is what matters. What you proposed above would actually hurt your score. Opening a new installment loan to pay off another means means taking your current installment loan utilization and bringing it up to 100%. For you specifically, you'd be going from a 61% installment loan utilization being factored into your score to that loan being closed and replaced with a new loan at 100%. This would result in a score drop, not a gain. If all other things remained exactly the same with your profile (which they wouldn't, of course) you'd have to pay down that new 100% utilization loan to near that 61% amount to see a similar score gain. Certainly, this wouldn't be a favorable move.

Regarding your revolvers, it's generally not advised to take out an installment loan to pay down a revolver. Honestly, your revolvers really aren't in a bad place. Most report not receiving any sort of score ding if you have a bunch of revolvers and let one report as high as 28%. Basically if you could pay your one revolver down from 48% to 28%, you'd achieve the same scoring benefit (maximum) as if you paid it down to 1%. Looking at the numbers that way, I'm sure that looks much more doable, paying down 20 percentage points of that revolver verses 40 to get it to 8% utilization.

Re: Types Of Installment Loans

credit_endurance — Wed, 28 Jun 2017 16:12:36 GMT

Yes, BBS & CGID very good explanation and addresses my topics of concern thanks so much. I think I will 'tweak" a couple things credit wise as I am really wanting that PenFed power cash rewards card to replace my capital one card 23.49 APR and maybe go for one more Amex revolver to kick the BCP/PGR $95/175 respectfuly per year to the curb and just work on getting the personal loan down to less than 9% reporting and most importantly, the BOA down to around 28% and this should maximize what I currently have. Thanks again to you both for your valuable insight.

Re: Types Of Installment Loans

credit_endurance — Wed, 28 Jun 2017 16:50:51 GMT

@Anonymous wrote:
@credit_endurance wrote:
Sure I would appreciate that.

First for the simple thing the loan: Through my local credit union 2 years old as of May 15, 2017 payments per month $158.00 - APR 17.49- $5,000 - 48 month term
I have paid it down to $3,048 still ownung out of the $5k. No penalty for PIF early. If I would pay it down to say like $460.00 left that should put me around the 9% threshold but, with a monthly payment of $158.00 it would be paid off to soon so need advice on how to stretch the life of this loan out to maximize scores.
You don't want to be around the 9% threshold. You want to be less than the 9% threshhold. $460 will be greater than 9%. So figure out what 9% is and then you'd want to pay it down to at least $1 less than that.

It's quite possible that your lender will not require you to make monthly payments once you have paid the loan balance way down. Such lenders call this "pre-paying" the loan and what they do is to push the next due date way into the future. Call your lender and ask them how they would handle that.

If you do get into a situation where it looks like the loan will get paid off early, then you will want to implement something called the Share Secure Loan Technique. You can read about it here. You only need to read the first 2-3 posts. The second post will also give you the answer to the "theory" question about how FICO scores installment debt.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secure-technique/m-p/4506756

Bear in mind that paying down installment debt helps you less than paying off your credit cards. (You'll still have one card reporting a small balance.) Depending on how high your CC utilization is, the paydown of CC debt could help you MUCH more.

Just did some recalculating and I would need to get my current loan down to around $445-$440 roughly to be around that 8.9 percent threshold. Thanks CGID for this suggestion I will call my local credit union and see if they would do a pre pay and push payments down the road. Will report back soon.

Re: Types Of Installment Loans

Anonymous — Wed, 28 Jun 2017 17:53:42 GMT

@credit_endurance wrote:
Next the credit cards: I currently have 19 open revolving lines. I have closed a total of 8 cards this past year.

Open cards: BOA cash rewards $7779/16,600 (strickly a BT card ) 48 percent usage reported
NFCU Gorewards/Platinum Visa $0/17,500- $0/22,000
PenFed Platinum Visa Siggy $0/30,000
Chase Ritz Carlton Visa Infinite $0/20,000
Chase Hyatt Visa $0/8000
Discover IT $0/3,600 (recently used for a BT offer but on chopping block due to high APR)
CiTi DC $0/3,500 (Looking to raise this limit via a HP only one cli in a year)
BancoPopluar $0/25,000
Amex BCE $0/2,000
Amex BCP $0/10,000
Amex PGR NPSL
Lowes $0/17,000
Care Credit $0/18,000
Amazon StorePrime $0/10,000
Walmart Store Card $0/6000 (on chopping block due to non usage)
Barclay Ring Mastercard $0/7,500 ( used a my go to BT w/8.25 APR need to get a CLI on this one though for the long haul)
Don't laugh at me Credit One Bank $0/1,150 (Keeping this puppy around for the history 2nd card in my rebuild and oldest currently opened reporting) And usually reports a small balance every month so this card could be the one I use to maximize my scores when everything else reports $0.)
NFCU CLOC $0/15,000
PenFed PLOC $0/10,000

These are the ones that come off the top of my head. I will add more if needed. But as you can see here only BOA is reporting the balance. I would like to do some more tweaking of my profile please advise. Thanks

I am sure the advice you are getting from other people makes sense. Although I haven't read all the other comments I am sure they are telling you to get your card down to <28% individual and your loan balance down.

Regarding your Credit One card, can you let us know the month/year it was opened, along with the month/year Date Opened of your next two oldest open cards?

Closing it will not affect either of these FICO scoring factors:

* Average Age of Accounts

* Age of Oldest Account

Not even the tiniest bit. So if the Credit One card charges you an annual fee, and since you already have a ton of other cards, you should strongly consider closing it.

Is there any particular reason you have so many revolving lines (and plan to open still more)?

Re: Types Of Installment Loans

credit_endurance — Wed, 28 Jun 2017 18:25:45 GMT

@Anonymous wrote:
@credit_endurance wrote:
Next the credit cards: I currently have 19 open revolving lines. I have closed a total of 8 cards this past year.

Open cards: BOA cash rewards $7779/16,600 (strickly a BT card ) 48 percent usage reported
NFCU Gorewards/Platinum Visa $0/17,500- $0/22,000
PenFed Platinum Visa Siggy $0/30,000
Chase Ritz Carlton Visa Infinite $0/20,000
Chase Hyatt Visa $0/8000
Discover IT $0/3,600 (recently used for a BT offer but on chopping block due to high APR)
CiTi DC $0/3,500 (Looking to raise this limit via a HP only one cli in a year)
BancoPopluar $0/25,000
Amex BCE $0/2,000
Amex BCP $0/10,000
Amex PGR NPSL
Lowes $0/17,000
Care Credit $0/18,000
Amazon StorePrime $0/10,000
Walmart Store Card $0/6000 (on chopping block due to non usage)
Barclay Ring Mastercard $0/7,500 ( used a my go to BT w/8.25 APR need to get a CLI on this one though for the long haul)
Don't laugh at me Credit One Bank $0/1,150 (Keeping this puppy around for the history 2nd card in my rebuild and oldest currently opened reporting) And usually reports a small balance every month so this card could be the one I use to maximize my scores when everything else reports $0.)
NFCU CLOC $0/15,000
PenFed PLOC $0/10,000

These are the ones that come off the top of my head. I will add more if needed. But as you can see here only BOA is reporting the balance. I would like to do some more tweaking of my profile please advise. Thanks
I am sure the advice you are getting from other people makes sense. Although I haven't read all the other comments I am sure they are telling you to get your card down to <28% individual and your loan balance down.

Regarding your Credit One card, can you let us know the month/year it was opened, along with the month/year Date Opened of your next two oldest open cards?

Closing it will not affect either of these FICO scoring factors:
       * Average Age of Accounts
       * Age of Oldest Account

Not even the tiniest bit. So if the Credit One card charges you an annual fee, and since you already have a ton of other cards, you should strongly consider closing it.

Is there any particular reason you have so many revolving lines (and plan to open still more)?

The Credit One Bank card was opened in (1) May 2014. Next oldest card would be my (2)Capital One QSNF opened May 2015 (3) Amex BCE opened 4/16 so as you can see there was a significant gap between opening each.

As for my openeing of soo many revolving lines of credit.I think it comes down to some of everything from experimenting, to the thrill of approval, to lack of credit knowledge etc. "If I would have knew then what I know now slogan" things would have turned out much different. One thing I did try to do is when I went on my spree's I would app them together as in 2-3 apps every 2 months or so as to age them down the road. In which I am seeing a slight fruition to this right now. I do plan on closing a couple more cards due to none usage, AF's, similar cards with same benefits etc. PenFeds Power Cash Rewards (would replace my Capital one QS as it has a higher APR and I would most likely get a better rate and 2% cash back on everything instead of the 1.5% and higher apr rate. Another Amex revolver in which won't go against my utilization with no AF would replace my BCP & PRG which both carry fees. So with my AAoA reaching 2 years and the fact my profile is thick adding 2 more accounts shouldn't ding me to much. Hope that makes some since CGID .

Edit**Forgot to mention the Capital One $0/9600 & Blispay $0/5,000** I knew there where 2 more cards missing from the original list.

Re: Types Of Installment Loans

Anonymous — Wed, 28 Jun 2017 19:31:22 GMT

Well, just bear in mind that AAoA and Age of Oldest Accounts both consider closed accounts. That's why closing your Credit One account won't affect either factor. FICO will still consider that Credit One account to be your oldest account.

Ten years from now it would fall off your report, but you'll have other accounts that are almost as old when that happens. And by closing it soon you will save yourself ten annual fees over the next ten years.

Re: Types Of Installment Loans

credit_endurance — Thu, 29 Jun 2017 13:55:13 GMT

Just a follow up CGID.. I spoke with a rep at my local credit union and he confirmed that they could only push payment due dates as far as a maximum of 3 months ahead. So if I would to pay my loan down to $455 balance =8.9% threshold would it then be wise to imply the SSL technique somewhere in between the 3 months grace period between payments with my local credit union?

Re: Types Of Installment Loans

Anonymous — Thu, 29 Jun 2017 17:35:26 GMT

Yeah, basically I'd pay it down to 8.9%. Then figure out when the loan will pay off completely. Then back that up two months and that is when I would implement the SSL technique.