topic Re: How long does closing an installment loan affect credit? in Rebuilding Your Credit

How long does closing an installment loan affect credit?

Getmycreditback — Sat, 23 Dec 2023 15:12:12 GMT

I recently paid off a $1300 loan early that had 65% APR and was scheduled to continue until 2026. If I didn't pay it off early I would've paid $3840 if I stayed with their plan.

I was hoping having less debt would weigh more than closing the account because my credit score dropped 4 points since paying it off.

How long will this hurt me? Will it start to go back up next reporting cycle if I continue to pay off debt or will this hold me back for some time?

Re: How long does closing an installment loan affect credit?

Horseshoez — Sat, 23 Dec 2023 15:29:17 GMT

@Getmycreditback wrote:
I recently paid off a $1300 loan early that had 65% APR and was scheduled to continue until 2026. If I didn't pay it off early I would've paid $3840 if I stayed with their plan.

I was hoping having less debt would weigh more than closing the account because my credit score dropped 4 points since paying it off.

How long will this hurt me? Will it start to go back up next reporting cycle if I continue to pay off debt or will this hold me back for some time?

If you have another installment type of loan, say a mortgage or a car payment, then something else caused your score to drop. If you have no other installment type loans, then opening an SSL and then paying it down to under 9% will give your scores the same boost as the loan you just paid off (65% APR? Yikes, was that from a loan shark?). The two most mentioned SSLs here are from Navy Federal Credit Union (NFCU), assuming you're qualified to join, and Pentagon Federal Credit Union (PenFed), where anyone can join.

Re: How long does closing an installment loan affect credit?

hoosier64 — Sat, 23 Dec 2023 15:47:39 GMT

If you do have another installment loan that is still open, are you looking at a FICO score or a Vantage score on Credit Karma or somewhere else? I had a small score drop for Vantage when one of my installment loans was paid off even though I still had another open installment loan, but no drop in FICO 8.

Re: How long does closing an installment loan affect credit?

Getmycreditback — Sat, 23 Dec 2023 15:57:30 GMT

That 65% apr loan was from NetCredit. I wouldn't recommend them to anyone.

Re: How long does closing an installment loan affect credit?

Getmycreditback — Sat, 23 Dec 2023 16:01:41 GMT

I get alerts from Experien.

I received 3 alerts yesterday.

1 - a credit report change saying my "total number of open tradelines decreased by 1" and "number of open installment loans decreased by 1" with tags that says it could help or harm my score.

2 - loan paid off

3 - and my score dropped by 4

Because all of these alerts came in at the same time I assume that they're all related to paying off that loan.

Re: How long does closing an installment loan affect credit?

Horseshoez — Sat, 23 Dec 2023 16:07:01 GMT

@Getmycreditback wrote:
I get alerts from Experien.

I received 3 alerts yesterday.
1 - a credit report change saying my "total number of open tradelines decreased by 1" and "number of open installment loans decreased by 1" with tags that says it could help or harm my score.
2 - loan paid off
3 - and my score dropped by 4

Because all of these alerts came in at the same time I assume that they're all related to paying off that loan.

Sounds like it was your only installment loan; a 4-point drop (or more) should be expected. Sounds like it is time to open up an SSL.

Re: How long does closing an installment loan affect credit?

JoeRockhead — Sat, 23 Dec 2023 16:49:19 GMT

4 points are easy to get back... Just keep your credit and payment history clean, low UTI as possible for 6 months and you should gain those, and then some.

Re: How long does closing an installment loan affect credit?

pizzadude — Sat, 23 Dec 2023 17:58:29 GMT

@JoeRockhead wrote:
4 points are easy to get back... Just keep your credit and payment history clean, low UTI as possible for 6 months and you should gain those, and then some.

Agree, I wouldn't go opening a new loan just to claw back a few points. You'll get them back over time, and you can still achieve an excellent FICO score without an open installment loan.

Re: How long does closing an installment loan affect credit?

Getmycreditback — Sat, 23 Dec 2023 18:02:23 GMT

I was hoping to open a secure credit card but my credit might still be too low for one. That's why I was hoping for the increase.

But I'll wait and be patient

Re: How long does closing an installment loan affect credit?

pizzadude — Sat, 23 Dec 2023 18:04:50 GMT

@Getmycreditback wrote:
I was hoping to open a secure credit card but my credit might still be too low for one. That's why I was hoping for the increase.

But I'll wait and be patient

Do you have any revolving credit open currently ? If not then that's likely keeping your score down as well.

Most banks / CUs will open a secured CC for almost anyone, unless you've burned them in the past but even then sometimes they'll do it because a secured CC is a very low risk product for them.

Re: How long does closing an installment loan affect credit?

Getmycreditback — Sat, 23 Dec 2023 18:09:17 GMT

I only have one credit card at the moment. It's my Discover card, but I haven't been using it since trying to pay if off. That's my next target.

Unless I should be making small purchases on it while paying it down to show activity. I haven't used it in almost a year.

Re: How long does closing an installment loan affect credit?

pizzadude — Sat, 23 Dec 2023 18:13:22 GMT

@Getmycreditback wrote:
I only have one credit card at the moment. It's my Discover card, but I haven't been using it since trying to pay if off. That's my next target.

Unless I should be making small purchases on it while paying it down to show activity. I haven't used it in almost a year.

Ideally you'd want to have three open CCs and utilize AZEO to maximize your FICO score.

You should make a small purchase on your Discover card every 6 months or so, otherwise you are at risk of them closing it for inactivity.

Re: How long does closing an installment loan affect credit?

Horseshoez — Sat, 23 Dec 2023 19:09:49 GMT

@Getmycreditback wrote:
I only have one credit card at the moment. It's my Discover card, but I haven't been using it since trying to pay if off. That's my next target.

Unless I should be making small purchases on it while paying it down to show activity. I haven't used it in almost a year.

Based upon that I seriously doubt you'll have an issue opening a secured credit card; that and lenders like CapOne may well approve you for an unsecured card.