Does a secured personal loan help or hurt?

[Anonymous]

This is an example of closing the barn door after the horses got out, since I already have the loan, but I thought I'd ask out of curiosity. Based on the "BK to 700 in 2 years" post, I got a $1000 credit builder secure loan from my credit union. They do report to all three agencies but it does say "secured." Is that good or bad? Also, I asked the guy if it would be helpful for me to pay down the balance but he said the payment would remain the same and "they" like to see steady payments. Does this loan affect my utilization? 

For background - Chapter 7 discharged 04/2018, scores in the 560-575 range. Now, CapOne $300, CreditOne $300, Personal loan $1000, scores in the 620's. 

[Anonymous]

---

@Anonymous wrote:

They do report to all three agencies but it does say "secured." Is that good or bad?

---

The comments added to secured accounts (cards, loans, etc.) are irrelevant. Your credit score will be calculated by seeing a loan, its payment history, balance, etc. A loan officer may take these comments into consideration when manually underwriting a credit application (or they may not care).

---

@Anonymous wrote:

 Also, I asked the guy if it would be helpful for me to pay down the balance but he said the payment would remain the same and "they" like to see steady payments. Does this loan affect my utilization? 

---

I'm not sure who "they" are. Your loan util is calculated by the balance vs. original loan amount. If you make larger payments than regular, you'll pay it off sooner. Because this credit won't let you skip payments for large payments made in advance, you'll want to consider how much "extra" you want to pay, and ensure you don't pay off the loan too soon.

Navy Federal considers someone as a first-time borrower or as not having re-established credit after bankruptcy if there is not a minimum of three accounts with six months worth of payment history. For that reason, I recommended Navy Federal members to ensure that secured loans remain open for at least six months. A 5-month loan history would be insufficient in helping rebuild credit from a manual underwriting perspective, although it may help your credit score.

[Anonymous]

Thanks for the good info! Do you recommend always having some sort of loan going for the credit mix? I have this one for a year. When it's over, I won't really need a loan, but will get one just to help rebuild if needed.

[Anonymous]

I've always recommended that people establishing or rebuilding credit have one loan and two revolving accounts on their credit reports. I don't think it's necessary to always have an "active" loan with a balance, as your score will be calculated based on repayment history for paid loans. If the loan is very old, or no loans are on the CBR after bankruptcy, then another loan may be beneficial. Some credit rebuilding guides suggest getting larger dollar loans after the initial loan is paid off. This would certainly help demonstrate an ability to repay a larger loan. Personally, I wouldn't want to decrease my average age of accounts by taking out a lot of loans. 1x per year should be fine.

[Anonymous]

Thanks again! I do have a student loan that's in deferment as I'm in school now. I will look into whether I can start making payments to it that will show on the report. That's a good point about the average age.