topic Re: Does an installment loan hurt my score? in Understanding FICO® Scoring

Does an installment loan hurt my score?

tmacar — Sat, 10 May 2008 05:24:00 GMT

I recently paid my revolving debt to credit ratio down from 81% to 15%, and was waiting for the new balances to get to my credit reports. A few days after making the last payment, and way before anything could have been reported, ScoreWatch sent me an email telling me my score had gone from 638 to 658.

I went to the simulator to see what would happen after all the new balances got reported, and it said my score would go to between 728 and 768. I have heard from numerous sources that once the FICO gets above 720, one will usually be approved for anything he applies for, so getting to at least 728 is very important to me.

However, I recently got a $2500 signature loan from my credit union, and Equifax just told me it has gotten on my report. Is this going to hurt my score? I know opening a new revolving account will usually result in a score drop. Will a new installment account do the same thing?

Also, I just paid off another installment loan, from a consumer finance company, a couple of months early, and that should be getting reported any day now. I have, in effect, traded an old consumer finance loan for a new credit union loan, with about $20 less for a monthly payment on the new loan. Will there be either a net gain or a net loss in my score after both of these changes get reported?

Re: Does an installment loan hurt my score?

RobertEG — Sat, 10 May 2008 07:27:54 GMT

Tmacar. that is not a simple question to answer.. From a credit mix category scoring, you have exchanged one install loan for another, so in a month or two you credit mix should be the same.. But presumably, as is allmost assuradly true, you suffered a hard pull inquiry to obtain the new loan, so around a 10 pt hit in new credit inquiries Your % util of installment loan, assuming the old loan when paid off had a low balance, will increase with the addition of the new loan. The new loan will also reduce your avg. age of accounts, and how much depends on your avg age prior to addition of the new loan.

So, in a simple FICO analysis, I dont think it will be a wash. I would expect your FICO to take a short term hit of at least 10 points based on the impact of the new install loan. However, you have other more significant changes in your CR due to the change in your revolving util. I am speaking only iwth regard to the new install loan, and your overall score may go up, but the impact of the new install loan in and of itself will almost certainly be a neg.

Message Edited by RobertEG on 05-10-2008 12:27 AM

Re: Does an installment loan hurt my score?

haulingthescoreup — Sat, 10 May 2008 14:28:53 GMT

@tmacar wrote:
I recently paid my revolving debt to credit ratio down from 81% to 15%, and was waiting for the new balances to get to my credit reports. A few days after making the last payment, and way before anything could have been reported, ScoreWatch sent me an email telling me my score had gone from 638 to 658.

I went to the simulator to see what would happen after all the new balances got reported, and it said my score would go to between 728 and 768. I have heard from numerous sources that once the FICO gets above 720, one will usually be approved for anything he applies for, so getting to at least 728 is very important to me.

However, I recently got a $2500 signature loan from my credit union, and Equifax just told me it has gotten on my report. Is this going to hurt my score? I know opening a new revolving account will usually result in a score drop. Will a new installment account do the same thing?

Also, I just paid off another installment loan, from a consumer finance company, a couple of months early, and that should be getting reported any day now. I have, in effect, traded an old consumer finance loan for a new credit union loan, with about $20 less for a monthly payment on the new loan. Will there be either a net gain or a net loss in my score after both of these changes get reported?

If you're already getting score jumps, it sounds like at least one of your paid-down cards has updated. What did Scorewatch say was the reason for the jump?

I'd say that you're going to get a very temporary drop from the new loan, although I'd guess closer to 5 points, based on where your scores currently are. It will get buried in the overall improvement resulting from your lowered util. You might want to make an immediate payment on the new signature loan, if you can, as a loan at 100% gets FICO all in a twitter. But you can also just wait to make your payments on schedule. I got a negative for a new car loan being at high util (100% ), but it went away once the first schedule payment was reported.

Congrats on getting on top of your util! Keep it stomped down, with the next goal to go under 10%, with only a few cards (less than half) showing a balance. RobertEG will holler at me for saying that, because as he so rightly points out, this fine tuning is only needed when you're planning to apply for something. But I think that it's a good habit to get into, and if an opportunity pops up suddenly, I like having my scores up as high as I can get them, so as to be ready for anything. And even though util is the most easily fixed issue, there is still a built-in delay, as you are experiencing, involving the creditors reporting the new balance to the CRA's, and then the CRA's putting down their coffee cups and brushing the doughnut crumbs off their keyboards and entering the updated info on to your reports.

edit: gah, stupid percentage mark + close parenthesis = smiley

Message Edited by haulingthescoreup on 05-10-2008 07:28 AM

Re: Does an installment loan hurt my score?

Anonymous — Sat, 10 May 2008 17:01:52 GMT

The UTL payoff may not have fully hit yet so your score could still go up some. Then again the new account will probably take it down for a short while and might explain why it didn't come up as much. Paying off a consumer finance company loan can also result in a small score drop, no idea why but some people report that it has this effect. The credit union loan if reported as something other than consumer finance would fix that in a few months since that will probably raise your score. I think you might have to wait a few more months to see points from that loan. Try to stay away from consumer finance loans and stay with bank loans. They are scored differently. But sounds like you are doing very well.

Message Edited by ilovepizza on 05-10-2008 01:01 PM

Re: Does an installment loan hurt my score?

tmacar — Sat, 10 May 2008 19:23:54 GMT

No, none of the balances have updated yet except a Walmart card that only has a $125 limit and went from $65 to $29 today. There were NO alerts on the 5th when the score went up 20 pts to 658. I'm guessing that what happened was a delinquency or possibly a couple of them "aged off" the report. ALL of my delinquencies were in 2001, so I've been losing them as 2008 progresses, and I only have 2 left on Equifax now, which are an original account and its collection, which for some reason is not being categorized or scored as a collection.

The new loan IS showing with a high credit of 2500 and a balance of 2500, and from what you say I guess it's gonna hurt me. At least the balance will drop by a payment on June 1. Also, the one I paid off early is still showing as open and having a balance. But I've heard that a finance company loan can be a bad thing, and that it is at least not as good for your credit as a bank/credit union loan. Is that true?

Also, I took a risk. I sent disputes to Equifax and Experian, saying I realize that account balances are updated periodically, but what is showing in my report is so far removed from the current reality that it is having an incredible impact on my apparent credit worthiness. The figures in my report show a total revolving debt of xxxx and a total revolving limit of xxxx, for a debt to credit ratio of 81%, while the reality is that I have a total limit of xxxx with a total debt of only xxx, for a 15% ratio. Furthermore, from figures I have seen from time to time in my report, the "normal" periodic updating of balances can sometimes leave them out of date by as much as several months. This is having a negative impact on my score of between 70 and 100 points, and requires immediate correction.

I then listed the accounts, with the balances currently showing in the reports and what the real current balances were. I also went on line, called up each account, printed a screen shot which included the computer's date/time stamp, and included them with the letter.

I also said in the letter that I was including documentation of each account's true balance, and that if the credit bureau did not feel this was sufficient proof to make the corrections, they were not to designate the accounts as being in dispute, that I was not disputing the accounts themselves or anything listed in them except the current balance, and that if any creditor or creditors had already updated the balance before they received my letter they of course need do nothing at all regarding that account or accounts.

That is the risk I took. That they might designate all the accounts as in dispute, removing them from the score calculations. That would leave me with exactly 2 active accounts, my truck loan and the new credit union loan.

By the way, I have a total of 6 VISA/MC accounts, 1 gas card, and 2 retail store cards. 3 of the VISA/MCs have zero balances, none of the other accounts is over 25% at most, and my overall revolving debt to credit ratio is at 15%. Does that seem to be a good mix? I plan on closing the 3 zero balance VISA/MC accounts as soon as their CLs are replaced by CL increases on the 3 I want to keep.

Anyway, FICO said, starting with a 658, the balance changes will take me to between 728 and 768. I hope the new loan won't hurt so much that I don't get over 720.

Re: Does an installment loan hurt my score?

tmacar — Sat, 10 May 2008 19:29:37 GMT

Oh, I forgot to mention. I got the new loan on April 16, and have already made a payment. The credit union automatically took it from my checking account on May 1. However, for some reason, even though the Report Date on the Equifax listing is May 1, that 1st payment isn't showing up in the balance. I guess the balance for this account is always going to be a month out of date.

ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

tmacar — Sun, 11 May 2008 03:01:07 GMT

In-Frigging Credible. Equifax told me yesterday the new loan from the credit union showed up on my report. Today, 3 hours ago in fact, according to tis time stamp, MYFICO sent me an email alert, saying that a new account had been added to my credit report. It was, of course, the credit union loan. I had already pulled a brand new Equifax earlier today (I belong to the Equifax site, also), so I already knew that absolutely nothing has changed except for that new account.

The email said there have been some changes to your report. Also, your score has decreased 56 points!!!!

I checked MYFICO alerts and also double checked today's Equifax report. Sure enough, the ONLY change is the addition of the credit union report. And my score dropped from 658 to 602. Is this normal? Can adding one new account, an installment loan, cost 56 points? I never lost anything like that even when a new revolving account got added.

And now I can't even use the score simulator to try and see what my score will be when The pay downs get posted unless I shell out another $16 for a new Equifax on the MYFICO site.

TOTAL FICO INSANITY Re: Does an installment loan hurt my score?

tmacar — Sun, 11 May 2008 03:07:14 GMT

Oh, I forgot one thing. There was NO inquiry added to my report. In the first place, the hard pull was on April 14, so it would likely have already been on the report, but more to the point, my credit union only checks Experian for anything except for things like mortgages and large business loans.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

haulingthescoreup — Sun, 11 May 2008 03:24:01 GMT

No, that doesn't make any sense at all. Even if the first score increase was spurious, you wouldn't have lost 36 points for a new loan.

CS is closed tomorrow (Sunday), so you'll have to wait till Monday if you want to call someone.

In the meantime, I know that you said that you already checked your reports, but did you count to see if every single account, open or closed, is on both reports? What you're going through sounds an awfully lot like a split file, where part of your accounts have broken off, and sometimes one portion is pulled for scoring, and sometimes another.

Please tell me you don't have a Sallie Mae student loan? They've just changed how they code some of their payment plans, and people are posting score drops of up to 125 points. The thread has been stickied on this board.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

tmacar — Sun, 11 May 2008 04:02:42 GMT

No, thank God, I don't have a Sally Mae. I read about that horror story, and was thinking how lucky I was to get through college without one. IN fact, I'm not even sure they existed back then (in the 70s - giving away my age here).

Has ANYONE ever seen a drop like this due to one new installment loan?

And does anyone know of a case where someone called FICO and FICO replied that yes, they had made a scoring error, and then fixed it?

I just this minute finished comparing my May 5 Equifax, when I was at 658, to my May 10 Equifax, which is at 602, account by account. I also counted the number of inquiries. The May 5 and May 10 reports are entirely identical, including both open and closed accounts, revolving and installment, except for the addition of the credit union loan and a change in balance on my Walmart account from $68 on May 5 to $29 on May 10. That's the only one of my new balances that have been reported so far, and THAT certainly didn't drop my score 56 points.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

Anonymous — Sun, 11 May 2008 17:48:05 GMT

It is possible you were rebucketed for your amount of new credit. That would still be a huge hit but some people have taken sizeable hits from rebucketing but it has mostly come back over the next few months.

I wouldn't worry about the score drop in the next few months as long as you keep your util low. Your creditors shouldn't worry if you are managing all your accounts responsibly. Why don't you do a pull in a few months time to see if the score is still that low and only then worry about it. (if you are working on getting a mortgage soon that advice goes out the window, find out whats going on ASAP)

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

tmacar — Sun, 11 May 2008 23:38:55 GMT

I hate sounding ignorant, but what is rebucketing?

As for new debt, I only added $2500, which is only about 5% of my income. I had $4943 with a "limit" of $8009. or a 62% ratio.

I now have $7443 with a "limit of $1059, a 71% ratio. Even if it was revolving instead of installment, that wouldn't have cost me 56 points.

I don't think FICO uses this, but in case they do, I only have a debt to income ratio (revolving and installment together) of 25%. And that's according to my Equifax - it's really quite a bit lower, because I just paid all my revolving down, from $4231 to $869, changing my revolving ratio from 81% to 15%, and only one of the new balances has shown up on the report yet (and that one was only a drop from $86 to $29).

In fact, that's the big problem. According to the MYFICO simulator, once all the new balances post, I was gong to go from 658 to at least 728, possibly as high as 768.

Based on going over 720, I've been offered a no down payment, 5.5% loan on a new vehicle that has nearly $5,000 in rebates on it - UNTIL JUNE 1. Then the rebates go away. I just don't have several months to wait.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

Anonymous — Sun, 11 May 2008 23:53:24 GMT

tmacar

FICO uses scoring buckets, in a way to better differentiate between good and bad credit risks among different groups.

Thus, someone with only a 1.5 year credit history will not be directly compared with someone with 40 years of credit history. He or she will be matched up and scored on a curve for that group. It is probably essential to be in buckets with long credit histories and no baddies to achieve high scores of 800+.

Some of the talked about buckets on this board are:

New credit

2-5 years

probably over 12+

then a bucket for people with BK and/or late payments

By obtaining new credit you could have been placed into the New credit bucket, essentially getting graded on a different curve with probably a slightly different formula.

I would expect you to have a large increase with all your balances lowering, but I wouldn't expect 768. I would, however, expect 720+ if you weren't in fact rebucketed.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

tmacar — Mon, 12 May 2008 02:03:50 GMT

Thanks for the explanation. I don't think I could have gotten rebucketed, then. The age of my credit history hasn't changed, it's still back to August 1998, almost 10 years. One of the first things I looked for was whether any older entries had disappeared and shortened my history, and they haven't. And at $7,443, my total debt (isn't high enough to have caused a rebucketing, I wouldn't think. And that's everything, installment and revolving both, even without counting the recent approximately $3,400 reduction in revolving - in fact, come to think of it, I've paid off more revolving than the amount I just borrowed on the installment loan, by about $800 or $900.

MYFICO said I WOULD go over 720, to at least 728. I never expected to get to the high end, 668, but had hopes of maybe 740 or so, and thought the 728 was a certainty. But that was when the starting point was 658. With a starting point of only 602, I'm not sure I'll even make 700. Something is seriously wrong here.

Remember, there have been absolutely NO changes whatsoever in my Equifax, other than the addition of a single $2,500 installment loan from my credit union and a balance reduction from $81 to $29 in one of my revolving accounts.

I already had an Equifax for May 5, when I was at 658, and I pulled another one on May 10, when I was at 602. These were both pulled directly from Equifax, not through MYFICO. I compared the 2 reports, category by category and account by account. There are absolutely zero changes, even in Remarks sections, except the 1 new account and the 1 balance reduction.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

tmacar — Mon, 12 May 2008 02:10:46 GMT

Another thing - I found and read through the rebucketing string, and I didn't see anyone who got hit for anything like 56 points.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

tmacar — Mon, 12 May 2008 22:38:28 GMT

I just called MYFICO. By the way, don't try calling them on a Monday. I spent 55 minutes on hold this morning before I gave up, and another 15 minutes on hold this time before I got a person. I suspect it's because it's Monday, and all the problems people ran into late on Friday and on Saturday and Sunday are causing calls today.

The first thing I got was that she didn't have any idea. It took about 10 minutes to get that far, but that's what it amounted to. Then she said she could "escalate" it, but she couldn't do that unless she could look at the current Equifax to verify that the only change between May 5th's 658 report and May 10th's 602 was, in fact, the new credit union loan for $2,500. She couldn't escalate based on my saying that was the only change. And, of course, she can't see the May 10 report I pulled at the Equifax site, and she said even if she could somehow see it she couldn't escalate based on that either. She had to see the current Equifax that FICO has and is scoring from. So I had to spend $15 to pull a new Equifax through MYFICO, so that she could see it on her system.

So she's escalating it. What does that mean? "Someone will contact you within 48 hours." Whether that means by phone, email, or mail, she didn't know. Customer SERVICE? More like Customer STALLice, I'd say.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

tmacar — Mon, 12 May 2008 22:59:37 GMT

Oh, forgot to mention. The May 11 report has me back up to 605. Another revolving account's new balance has reported. I had one that went from $81 to $29 showing already on May 10, which had no effect on the score. This second one went from $293 to $77, and that apparently got me 3 points. It's hard to know how much I'll get for the rest, the percent of balance decrease will be different every time. Coincidentally, these 2 are the accounts that got the least amount of money paid on them. There are 8 more revolving accounts, each one with a decrease somewhere between $400 and $800 dollars, and one newly paid off installment loan (a $250 drop) yet to report, and 3 of the revolvings (and the installment loan, of course) will be going to zero balances, and I've heard that having some accounts with zero balances helps the score.

Unfortunately, unless I get one heck of a lot more than 3 points for each paid down or paid off account, I'm sure nor going to break 720. And if I don't break 720, I lose out on a vehicle with $5,000 in rebates that expire at the end of May, because I need the 720 for a no down payment 5.5% loan.

I'm just praying that the 56 point drop for a single new $2,500 installment loan was some kind of mistake, and that whoever the thing has been "escalated" to finds and fixes it. I don't have much hope, though. I was thinking that maybe something got messed up in the transmission from Equifax to FICO, so FICO was scoring from an erroneous report, but they're not. What they have is identical to what I got directly from Equifax.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

smallfry — Mon, 12 May 2008 23:00:36 GMT

Equifax is just plain crazy lately. My other scores keep going up while EQ lays like a dog. It appears as if I even got credit this last pull for 8 accounts out of 14 aging to the 1 year BD and still the score didn't move. This even after I paid my car loan down from 12K to under 4K on a 25K initial line from last June. Make sense to you?

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

tmacar — Mon, 12 May 2008 23:40:54 GMT

smallfry,

I hate to admit it, but kinda.

Equifax itself doesn't actually score the report. They just report whatever the creditors send them. Then all that information gets looked at by a computer which then runs it through an established algorithm and assigns a numerical score.

Equifax is scored with the FICO system. Experian and TransUnion use different systems, I don't remember what they're called. If you pull them from any site other than MYFICO, you'll be getting the score that resulted from a different scoring system.

If you REALLY want to compare the 3 reports, you need to go to the MYFICO site and pull Experian and TransUnion. Then you'll be able to see how they compare when they're all scored with the same system (FICO, of course). If you see differences then, there must be differences in the information in the actual reports.

I'm not sure what effect if any the 1yr age on a revolving account has on the score. I know a new revolving will drop your score, and too many new revolvings will kill you. Have you seen any score increases since the revolving accounts got past, say, 3 months old? Maybe as they get older you get just a few points at a time periodically over the course of the first year.

As far as I have been able to figure out in the nearly 3 years I have been monitoring my scores, installment balance doesn't have much of an impact on the score unless an installment loan puts your total debt higher than they like to see. That's why I'm so upset over a 56 point drop when the only change to my report is a new installment loan. It only puts my tiotal debt, recvolving and installment together, at $10,000, which is actually pretty darned low for the average American consumer, and should not have cost me what it seems to have. It's a total debt lower than most people's car loan all by itself.

Sometimes, people say, when an installment loan is reported without any payments showing yet, you get dinged fairly heavily because the credit limit and the balance are the same. If that's true, they ought to change it. Everyone's balance is identical to the limit whenever they open an installment loan. Not like a revolving account, where you are given a credit limit and then decide yourself how much of it to use.

Re: ABSOLUTE FICO INSANITY Re: Does an installment loan hurt my score?

smallfry — Tue, 13 May 2008 00:10:53 GMT

tmacar I've been around here a while. Do you think I would comment on any scores other than true FICO's?