topic Re: Does Installment Debt Hurt or Help a Score? in Understanding FICO® Scoring

Does Installment Debt Hurt or Help a Score?

Anonymous — Tue, 28 Feb 2012 19:20:21 GMT

Hey all.

I'm sure this question has probably already been addressed, so please forgive me if this seems redundant...but:

Will using an installment loan to pay off revolving credit card debt boost a score?

Case in point, I'm trying to get CC debt free, and would like to use the remaining cash I have in an installment loan to do it. But debt is debt, so...Is installment debt better to have than credit card debt?

Re: Does Installment Debt Hurt or Help a Score?

pizzadude — Tue, 28 Feb 2012 19:32:05 GMT

@Anonymous wrote:
Hey all.

I'm sure this question has probably already been addressed, so please forgive me if this seems redundant...but:

Will using an installment loan to pay off revolving credit card debt boost a score?

Case in point, I'm trying to get CC debt free, and would like to use the remaining cash I have in an installment loan to do it. But debt is debt, so...Is installment debt better to have than credit card debt?

Paying off revolving debt is always good for your FICO score. Adding a new installment account won't necessarily help your FICO score unless it improves your mix of credit. like if it was your first installment account.

Re: Does Installment Debt Hurt or Help a Score?

Anonymous — Tue, 28 Feb 2012 19:39:44 GMT

Just make sure your new installment loan doesn't have a higher percent than your revolving debt.

I've seen this happen way too many times, and people seemed to lack the understanding of why it wasn't a good idea sometimes to shift the debt around like that.

Months later, I've seen them walk back into my office because they're behind on their loan payments and also racked up the CC debt again.

I've even seen cases where they started using the CC's to actually pay the installment loan that they took out to pay the CC's in the first place. Confusing, I know, but it happens more often than you think.

Re: Does Installment Debt Hurt or Help a Score?

Anonymous — Tue, 28 Feb 2012 21:00:22 GMT

Frugal,

You make perfect sense. And that's why I thought long and hard before I switched. I was able to get a better interest rate (less than 9%) for the installment loan as opposed to the 15% I was paying with credit cards. My goal is to stay CC debt free, because it would defeat this whole process to get into debt again. So I have to really think about what I'm buying BEFORE I buy it. Thanks again for the input. Your answer really helped remind me what NOT to do. Kudos.