topic Re: Will getting a small personal loan, and immediately paying it off improve my credit? in Understanding FICO® Scoring

Will getting a small personal loan, and immediately paying it off improve my credit?

Anonymous — Sat, 28 Dec 2019 05:32:19 GMT

Hi all. Been reading these boards past few days and saw some technique used, at Alliant CU which is no longer available for loans. (Forget what it's called) Apologies if this is the wrong board, if it is please move the topic
 
Will getting a small personal loan, and immediately paying it off improve my credit?
 
Alliant is my primary CU, got $3,000 in savings there, and they have personal loans starting at $1000, 12 months 6.49% APR
Assuming I get approved this is what the website says.

No prepayment penalties. Pay early and save on interest
So, if I get the loan and pay it off in the next day. I would barely pay any interest on it, and in theory this would immediately be listed as a closed account in good standing on my credit reports.
Is this a good idea? Surely, this doesn't actually work, and getting a loan to immediately pay it off is meaningless?
If this has any benefits to building my credit / credit score please let me know. Thanks

EDIT TO ADD. I already have 2 student loans (federal ones) approximately 10k total over both. Both are deferred I am still in college. In case the loans are counted as the same type of credit I added this, not sure how it all works I'm really new to FICO. Thanks

Re: Will getting a small personal loan, and immediately paying it off improve my credit?

thornback — Sat, 28 Dec 2019 05:49:01 GMT

Hi Bunsen, welcome to the forums!

Since you already have 2 installments, getting a personal loan won't be of any scoring benefit for you - the installment portion of your credit mix is already fulfilled. You won't see any additional rewards for your existing loans until they are paid down significantly (below 8.9%). And i dont mean paid off - paying off your loans and having them close without another installment to replace them will actually cause you to lose points - so you want your student loans to remain open for as long as possible - or at least, till you're ready for an auto or mortgage loan. In the meantime, just keep the student loan balances from exceeding their original loan amounts by paying the interest while they're in deferment, if you can.

How many revolving credit cards do you have? You need 3 revolvers and 1 installment for optimum FICO scoring. Everything else boils down to just time (letting your accounts age) and perfect payment history.

Re: Will getting a small personal loan, and immediately paying it off improve my credit?

Anonymous — Sat, 28 Dec 2019 06:43:50 GMT

1 CC. Gardening for now waiting until I have a job this summer so I can apply with an actual number under income.
My scores are hovering around 710 right now.
Student loans - my parents are thankfully covering the interest on them while in deferment, they're mine to pay when I graduate.

Re: Will getting a small personal loan, and immediately paying it off improve my credit?

thornback — Sat, 28 Dec 2019 07:01:53 GMT

Good. You're fine. Add 2 more cards once you have income coming in and then let those age a bit (at least 6 months but a full year is better) before adding any more. Try not to get caught up in constantly apping for credit... keep the number of inquiries and new accounts per year to a minimum (2, maybe 3), be strategic - research & app for cards you believe you'll use long term, and keep your spending under control. You're in a good place - all you need to do right now is be patient...

Good luck this upcoming semester!!

Re: Will getting a small personal loan, and immediately paying it off improve my credit?

Anonymous — Sat, 28 Dec 2019 18:06:30 GMT

Thanks!

Re: Will getting a small personal loan, and immediately paying it off improve my credit?

Anonymous — Sun, 29 Dec 2019 04:11:41 GMT

Respectfully disagree that 3 revolvers is sufficient for optimum FICO scoring. First, it may vary by algorithm. I would personally advise no less than 5 to achieve nearly optimum on most flavors.

Next, there is also a school of thought that acquiring multiple revolvers at the beginning may be beneficial because it provides a strong AAoA buffer many years down the line. For example, say you had 4 or 5 20 year old CCs. The old accounts would be a rock against AAoA hits from new accounts.

In all other regards, +100 to the advice given.