topic Re: Two Open Installments vs One Open Installment in Understanding FICO® Scoring

Two Open Installments vs One Open Installment

EW800 — Thu, 27 Dec 2018 04:21:12 GMT

Hi All,

I know that every profile can be different, however I am just wondering if anyone might have FICO scoring experience between having two open installment loans vs. having just one open installment loan.

I have no mortgage loan currently. I currently have two open auto loans. I currently have both accounts paid a couple of years in advance, literally down to just the last payment or so. Both have a util way under 9% (roughly just 1-2%). I have not paid off either one, knowing that having an open installment loan is most ideal of FICO scoring. Can anyone tell me if in general paying off one of them completely, leaving just one open installment loan, could either help or hurt my scores? In a perfect world I would like to go ahead and pay one off, but don't want to take a hit on points. Is one open just as good as two by chance?

Just in case this makes any difference, I have one other CLOSED auto loan from about seven years ago that is a completely positve tradeline.

Thanks!

Re: Two Open Installments vs One Open Installment

Anonymous — Thu, 27 Dec 2018 06:05:20 GMT

As long there is one open (for credit mix) and the utilization remains under 9%, you'll be fine paying off one of them.

Re: Two Open Installments vs One Open Installment

Anonymous — Thu, 27 Dec 2018 06:58:29 GMT

There would be absolutely no scoring disadvantage to paying off one of your two installment loans, as both are at low single-digit utilization. Chances are that you wouldn't see any score change at all. One way you could theoretically see a slight (say) 3-5 point gain would be due to having 1 less account with a balance... but that would depend on your profile such as how many other accounts with balances you have, total accounts etc.

Re: Two Open Installments vs One Open Installment

Anonymous — Thu, 27 Dec 2018 13:33:08 GMT

Be certain that whatever loan you choose to leave open is the one most likely to stay open for a long time at this low utilization. Suppose, for example, that you have two loans, A and B. Both loans are at 5%.

Loan A permits prepayment of the loan and still has another four years to go. (You paid the loan way down early, and you can see that the Due Date for the next payment is 3.5 years from now.) Loan B, in contrast, would have been paid off in the next six months.

In this example, pay off loan B. This way you can (if you choose) still retain the big scoring bonus for another 3-4 years.

Re: Two Open Installments vs One Open Installment

EW800 — Thu, 27 Dec 2018 22:08:45 GMT

Thanks to each of you for the responses and insight. It sounds like I will be just fine paying one off.

CreditGuy -- Yes, that will be my strategy. One of the two loans is 0% (Ford Motor Credit Offer) that currently does not have a payment due until early 2022! I plan to just let that loan sit for a few years, with no interest charge and enjoying the benefit of having one open installment loan. The other loan has less time left on it and has interest (although only 1.9%), so I am sure it will be the one that I pay off now.

Thanks again to each of you!

Re: Two Open Installments vs One Open Installment

iv — Thu, 27 Dec 2018 23:48:25 GMT

@EW800 wrote:
One of the two loans is 0% (Ford Motor Credit Offer) that currently does not have a payment due until early 2022! I plan to just let that loan sit for a few years, with no interest charge and enjoying the benefit of having one open installment loan.

Just whatever you do... DON'T MISS THAT 2022 PAYMENT!

I don't know if FMC auto-payments will let you schedule it now, but even if they do - set (multiple) calendar reminders now, to check in on that next payment before it's due. Don't let that far-distant payment become a future landmine for your credit.

Re: Two Open Installments vs One Open Installment

Revelate — Fri, 28 Dec 2018 16:32:23 GMT

Just stating it explicitly: installment loan caluclations are calculated in aggregate, not individual, so 1 vs. 10 loans doesn't matter in the slightest: open yes/no, and aggregate balance / aggegate original loan size.

Re: Two Open Installments vs One Open Installment

calyx — Fri, 28 Dec 2018 17:15:15 GMT

@Revelate wrote:
Just stating it explicitly: installment loan caluclations are calculated in aggregate, not individual, so 1 vs. 10 loans doesn't matter in the slightest: open yes/no, and aggregate balance / aggegate original loan size.

Thank you for stating that, Revelate. And thank you to EW800 for asking the original question.

I have a loan I'm aggressively paying off, and I noticed that my next due date is also moving out (right now in 2020), so I was thinking of keeping the loan open until its final scheduled date once I have it down to ~200 or so since it's at such a low interest rate.
I may have to get an auto loan in the next couple of years (it'll probably be a third the size of my original amount of the current loan), and I was curious about the aggregate. I had calculated estimate payments to get down to 8.9% aggregate vs single balance, and that made keeping the current loan open longer that much more enticing.

Re: Two Open Installments vs One Open Installment

EW800 — Sat, 29 Dec 2018 14:02:52 GMT

@Revelate wrote:
Just stating it explicitly: installment loan caluclations are calculated in aggregate, not individual, so 1 vs. 10 loans doesn't matter in the slightest: open yes/no, and aggregate balance / aggegate original loan size.

Thank you for the confirmation, Revelate. Much appreciated. I was not aware that when it comes installment loans, they are not looked at individually.

Thanks again!

Re: Two Open Installments vs One Open Installment

EW800 — Sat, 29 Dec 2018 14:13:40 GMT

@iv wrote:
@EW800 wrote:
One of the two loans is 0% (Ford Motor Credit Offer) that currently does not have a payment due until early 2022! I plan to just let that loan sit for a few years, with no interest charge and enjoying the benefit of having one open installment loan.
Just whatever you do... DON'T MISS THAT 2022 PAYMENT!

I don't know if FMC auto-payments will let you schedule it now, but even if they do - set (multiple) calendar reminders now, to check in on that next payment before it's due. Don't let that far-distant payment become a future landmine for your credit.

iv, you are absolutely correct. After all our family has been through (ugly financial/score issues in 2011/2012), it will be absolutely horrible to miss a payment accidentally! My plan is to completely pay off the loan at least several months before it is due, but for now let it ride.

BTW, I will mention to the group that I know a case could easily be made that it is crazy to to pay off a 0% interest loan so far in advance, however the decision to do it this way was based on absolutely hating debt after all the difficult times that we went through, and wanting the the Util low for scoring purposes.

Thanks again to all of you!

Re: Two Open Installments vs One Open Installment

Anonymous — Sat, 29 Dec 2018 14:27:24 GMT

@calyx wrote:
I have a loan I'm aggressively paying off, and I noticed that my next due date is also moving out (right now in 2020), so I was thinking of keeping the loan open until its final scheduled date once I have it down to ~200 or so since it's at such a low interest rate.

Great idea. Not all lenders extend due dates as a result of prepayment, so you have a nice situation there. Definitely pay it down and keep it open.

Note, however, that the effective interest rate of all loans becomes negligible once you pay the loan down far enough. I.e. a loan at 2% and a loan at 10% both involve paying a few dollars a year in interest once the current balance becomes (say) $50.

I would avoid paying the balance down to an ultratiny amount, however, since lenders will sometimes close such a loan prematurely. Good rule of thumb is to keep the balance > $30 and also greater than the original monthly payment (defined at the beginning of the loan). Thus if the original monthly payment was $33, I'd keep the balance above $35.