topic Disadvantage to SSL credit enhancement in General Credit Topics

Disadvantage to SSL credit enhancement

SouthJamaica — Mon, 26 Apr 2021 16:32:58 GMT

We've often discussed the way a person who has no installment loans can improve their FICO 8 and 9 scores by taking out a share secured loan, and then paying it down to 9% of the original loan amount.

I just realized that there is a disadvantage to this technique: the fact that the "monthly payment" amount in the credit report is not lowered, as the balance is lowered. So this can weigh on one's debt-to-income ratio ("DTI").

E.g., take out a $5000, 60-month SSL loan, with monthly payments of $96 month. Then pay it down to $350, with 4 years left to make the payments. The monthly payment amount listed in the report does not decrease to $8 or so; it stays put at $96, or 27% of the balance.

Just something to think about.

Re: Disadvantage to SSL credit enhancement

Mr_Mojo_Risin — Mon, 26 Apr 2021 19:14:40 GMT

@SouthJamaica wrote:
We've often discussed the way a person who has no installment loans can improve their FICO 8 and 9 scores by taking out a share secured loan, and then paying it down to 9% of the original loan amount.

I just realized that there is a disadvantage to this technique: the fact that the "monthly payment" amount in the credit report is not lowered, as the balance is lowered. So this can weigh on one's debt-to-income ratio ("DTI").

E.g., take out a $5000, 60-month SSL loan, with monthly payments of $96 month. Then pay it down to $350, with 4 years left to make the payments. The monthly payment amount listed in the report does not decrease to $8 or so; it stays put at $96, or 27% of the balance.

Just something to think about.

I've never heard of someone mentioning that. I didn't know the payment amount didn't decrease for those utilizing the SSL.

That is very interesting, really good post.

Re: Disadvantage to SSL credit enhancement

SouthJamaica — Mon, 26 Apr 2021 21:05:52 GMT

@Mr_Mojo_Risin wrote:
@SouthJamaica wrote:
We've often discussed the way a person who has no installment loans can improve their FICO 8 and 9 scores by taking out a share secured loan, and then paying it down to 9% of the original loan amount.

I just realized that there is a disadvantage to this technique: the fact that the "monthly payment" amount in the credit report is not lowered, as the balance is lowered. So this can weigh on one's debt-to-income ratio ("DTI").

E.g., take out a $5000, 60-month SSL loan, with monthly payments of $96 month. Then pay it down to $350, with 4 years left to make the payments. The monthly payment amount listed in the report does not decrease to $8 or so; it stays put at $96, or 27% of the balance.

Just something to think about.

I've never heard of someone mentioning that. I didn't know the payment amount didn't decrease for those utilizing the SSL.
That is very interesting, really good post.

Yeah I've been using this technique for years, because I didn't have an ordinary installment loan. Only today I happened to notice this little factoid Worth taking into account if you're trying to manage your DTI, especially for people looking for a mortgage application, because (a) the SSL trick does little or nothing for their mortgage scores and (b) DTI, I am told, is a big thing in mortgage applications.

Re: Disadvantage to SSL credit enhancement

Mr_Mojo_Risin — Mon, 26 Apr 2021 21:34:23 GMT

@SouthJamaica wrote:
@Mr_Mojo_Risin wrote:
@SouthJamaica wrote:
We've often discussed the way a person who has no installment loans can improve their FICO 8 and 9 scores by taking out a share secured loan, and then paying it down to 9% of the original loan amount.

I just realized that there is a disadvantage to this technique: the fact that the "monthly payment" amount in the credit report is not lowered, as the balance is lowered. So this can weigh on one's debt-to-income ratio ("DTI").

E.g., take out a $5000, 60-month SSL loan, with monthly payments of $96 month. Then pay it down to $350, with 4 years left to make the payments. The monthly payment amount listed in the report does not decrease to $8 or so; it stays put at $96, or 27% of the balance.

Just something to think about.

I've never heard of someone mentioning that. I didn't know the payment amount didn't decrease for those utilizing the SSL.
That is very interesting, really good post.
Yeah I've been using this technique for years, because I didn't have an ordinary installment loan. Only today I happened to notice this little factoid Worth taking into account if you're trying to manage your DTI, especially for people looking for a mortgage application, because (a) the SSL trick does little or nothing for their mortgage scores and (b) DTI, I am told, is a big thing in mortgage applications.

Definitely a good catch by you.

I'm sure many here would be interested in this.

Re: Disadvantage to SSL credit enhancement

Anonymous — Tue, 27 Apr 2021 04:15:17 GMT

Yes I noticed this some time ago. My DTI is always 3.5% higher thanks to my SSL.

Re: Disadvantage to SSL credit enhancement

Anonymous — Tue, 27 Apr 2021 18:53:50 GMT

This a good thing to point out as some people might not realize that aspect even though logic would dictate that the payemt amount would remain the same thus affecting DTI. After all paying down just about any Loan doesn't change the payment terms set forth in the agreement that they report to CB's. It's still an easy thing to overlook and is a helpful DP for those looking to keep low DTI.

Re: Disadvantage to SSL credit enhancement

GrandBay — Tue, 15 Jun 2021 05:14:14 GMT

@SouthJamaica good catch & thanks for sharing! Your SSL posts have been very informative. I intend to open a 5 year loan with NFCU next June when I am finished paying off my auto loan.
also, I have considered opening a 12 month SSL until then. Is there any benefits (thicker file, more positive accounts etc) to opening an SSL with an active auto loan? What terms /months would you recommend if I am 12 months out from paying off auto?

Re: Disadvantage to SSL credit enhancement

SouthJamaica — Tue, 15 Jun 2021 13:28:48 GMT

@GrandBay wrote:
@SouthJamaica good catch & thanks for sharing! Your SSL posts have been very informative. I intend to open a 5 year loan with NFCU next June when I am finished paying off my auto loan.
also, I have considered opening a 12 month SSL until then. Is there any benefits (thicker file, more positive accounts etc) to opening an SSL with an active auto loan? What terms /months would you recommend if I am 12 months out from paying off auto?

No there would be no benefit whatsoever. You might actually be hurting your scores by lowering average age of accounts, adding another account with balance, and resetting youngest account.

Re: Disadvantage to SSL credit enhancement

gdale6 — Wed, 16 Jun 2021 14:56:56 GMT

Where it matters the most human eyes would see that it is not such a big thing, computers would not know unless they are programmed to look for such things.

Re: Disadvantage to SSL credit enhancement

Yasselife — Thu, 17 Jun 2021 13:53:13 GMT

The algorithms of the lender may be able to differentiate and we would not know, very easy to do. And although ut may not influence the Fico scores, it may do in the decision for the loan. Fico is just a tool.