Advice regarding Alliant method

[Anonymous]

Hello all and thank you for everything I've learned reading here so far. I hope to become a helpful contributor in the future.

In two years, without benefit of this forum, I've raised my scores from under 500 according to CK, to the following FICO 8 scores.
EQ:718 - TU:741 - EX:738 as of 3/18/16

At the time I had no baddies, and a smattering of inquiries. I had two secured cards, each with a $500 limit and 8% utilization on each. I had a secured installment account with a high of $1000 and a balance $751. I also had an auto loan with a high of $5540 and a balance of $3645, so a total of 67.2% installment utilization. I had an AAoA of 1 year, 8 mo., oldest account at 4 years, and newest at 4 mo.

At next report I'll have one card reported at zero, and the other at 8%, (thank you), and I'll have two additional inquiries.

So anyway, I took advantage of my new credit score and did a cash-out refi of my car, getting a better rate and about $2500 cash to get some equipment I wanted. I know I'm going to take a pretty good hit and I'm thinking I can soften the blow with the Alliant method.

If I were to take out a secured loan for $3500, that would put my total installment accounts at $10,500, then if I paid the Alliant loan down to a couple hundred, I could get my balances just under 66% and mitigate or negate any losses.

Is my general thinking here sound, and will the specifics play out the way I'm thinking? I know there's no absolute answer, but what would be general thinking on this?

If I've left out anything pertinent, please ask, and thanks in advance.

[Anonymous]

Hello figureitout, and welcome to the forums! Congratuations on the progress you've made with your credit profile so far!

Your reasoning seems sound. Although you might wait to see how much your score decreases when the auto loan reports (I assume it hasn't reported yet). It's not going to hurt to let the score drop -- it should recover fully when the Alliant loan hits. That way you would know how much benefit you were getting form the Alliant loan.

Whatever the benefit, there's really not much downside to the loan, assuming you have the $3500 you can tie up for a week or so until. There's no hard pull. And as you've probably figured out, once the loan is paid down, the interest is negligible.

[Anonymous]

Thank you for the welcome Plip. I'll let each action settle in before I take the next, to see what happens. I don't know if it'll offer any valuable data points for the general knowledge here, but I'll report back what happens, and file it into my own knowledge.
As a follow-up question, is it possible with Alliant to pay the loan down with the money in the savings account, or will I need to have another $3300-ish available to pay it in order to release the secured funds?

[Anonymous]

That's an important question!

You will not need additional funds to pay down the loan. Here's what will happen:

1. You will deposit $3500 and apply for the loan. This $3500 is locked to secure the loan.

2. You'll receive the loan and another $3500 (the loan) will be transferred to your account. Now you have $7000 in the account, only $3500 of which is locked.

3. Use $3300 from your account to pay down the loan. This will unlock $3300 of the security. Now you have $3700 in the account, and only $200 is locked (because your loan balance is only $200). So you can withdraw $3500 to replace your original $3500 if you want to.

Of course you will need the funds to finish paying off the loan at some point. Most people do that a few dollars at a time to keep the accounts active. And whenever you pay, the corresponding amount (less the interest) will become unlocked in your account.

[Revelate]

Yeah, if you've done the math right it does work that way.  I've been sorta looking at trying to stack on major installment loans (education, that I'd pay off in a few years) to try to offset the mortgage, but meh.  Decided it wasn't really worth it for 6 points on my profile, 15 year loan I'll get under 80% (maybe 70%) anyway soon enough in the grand scheme of things.