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Credit Utilization ...did I just make a HUGE mistake?

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New Contributor

Credit Utilization ...did I just make a HUGE mistake?

Guys I just wanted to make sure im almost positive this is the case but...ok so had about 70% utilization with an Auto Loan that is fairly recent and is already being reported on my report. I recently took out a loan for $10k to pay off all my credit card balances to zero now I have 0-1% utilization BUT the personal Loan for $10k has not posted on any bureaus yet. 

 

I guess the reason I did this is because I really wanted to bring my UTI down and I did get a 105^ increase going for 77% to 1% and yes im now paying 1 monthly payment at 17% for the 10k loan but I figured it was worth bringing my score back up and paying off loan and auto loan with time would really help.

 

So my question is did I just make a huge mistake and defeat the purpose of my strategy? Does installment loans like auto loans or personal loans bring down your score and Utilization? I mean I don't think it affected me with the auto loan being reported past 4 months now and my score has recovered from the HP and now I am higher than before the auto loan. What about a personal loan though? Does utilization stritcly calculate only revolving accounts and not installment accounts? Will the 10k personal loan affect my uti?

 

 

Equifax 649 - TransUnion 698 - Experian 666
Cap1 QuickSilver $3,800 / Cap1 QuicksilverONE $1,100 / AMEX BCE $500, AMEX Hilton Honors Surpass $1,000 ,Express $1,700 / Chase Amazon Prime Visa $3,000, Chase Freedom Unlimited $4,000 / Discover IT $500 / Credit One $600 / First Premier $700 / First Premier $650 / Walmart MC $700, Target RedCard Credit $400, Open Auto Loan Balance $21,000 / Open Personal Loan Balance $10,000. 1 open collections on my report for $2,000 from 2014.
Message 1 of 6
5 REPLIES 5
Super Contributor

Re: Credit Utilization ...did I just make a HUGE mistake?

No, the loan will be fine. Revolving Utilization considers only revolving accounts, not installment accounts like loans.

 

There's a completely differemt kind of "utilization" that some people here call Installment Utilization.  But it has nothing to do with your revolving accounts, only your loans.  Installment Util looks at how much of your open loans you have paid off.  For example, suppose your auto loan was for 30k and your new personal loan is for 10k.  Suppose further that you have paid off $900 of the car loan so far.  That means you still owe 97% of your loans that have reported so far.  (29100 / 30000 = 97%)  When your 10k started reporting, you'll owe a tiny bit more (39100 / 40000 = 97.75%) .

 

FICO will give you a small number of scoring points when your Installment Util gets a lot lower.  But the extra 10k won't change your current % hardly at all, therefpre your score won't change.

 

You can ignore Intstallment Util for a long time.  Just make your payments on time and you'll be fine.

 

Yoiur biggest challenge will be making sure that you never let your credit card balances get high again.  You need to develop a plan to ensure that you are (a) always paying your cards in full (b) always paying all accounts on time and (c) socking away a big chunk of your paycheck into a savings account to pay for emergencies, rather than using cards for that.

 

Congrats on paying off your cards and best of luck for the future.

Message 2 of 6
Super Contributor

Re: Credit Utilization ...did I just make a HUGE mistake?


@BLiNK3246 wrote:

Guys I just wanted to make sure im almost positive this is the case but...ok so had about 70% utilization with an Auto Loan that is fairly recent and is already being reported on my report. I recently took out a loan for $10k to pay off all my credit card balances to zero now I have 0-1% utilization BUT the personal Loan for $10k has not posted on any bureaus yet. 

 

I guess the reason I did this is because I really wanted to bring my UTI down and I did get a 105^ increase going for 77% to 1% and yes im now paying 1 monthly payment at 17% for the 10k loan but I figured it was worth bringing my score back up and paying off loan and auto loan with time would really help.

 

So my question is did I just make a huge mistake and defeat the purpose of my strategy? Does installment loans like auto loans or personal loans bring down your score and Utilization? I mean I don't think it affected me with the auto loan being reported past 4 months now and my score has recovered from the HP and now I am higher than before the auto loan. What about a personal loan though? Does utilization stritcly calculate only revolving accounts and not installment accounts? Will the 10k personal loan affect my uti?

 

 


As CGID points out, revolving utilization and installment utilization are 2 completely separate areas.

 

Installment utilization is computed on an overall basis only, no individual account utilization is factored in. So if someone with a big mortgage engaged in the transactions you mention, the overall utilization might not even be affected.

 

While installment utilization has a big effect on FICO 8, it's debatable what effect it has on mortgage scores. In my personal experience TU FICO 4 was affected, and EX FICO 2 wasn't. But others have had different experiences.

 

The breakpoints on installment utilization are also debatable; the only one that seems certain is that getting it down to 9% gets you a big boost on FICO 8.

 

 


Total revolving limits 720500 (594000 reporting) 10/2/19 FICO 8 scores: EQ 744 TU 782 EX 746
Message 3 of 6
New Contributor

Re: Credit Utilization ...did I just make a HUGE mistake?

Wow thank you so much for the replies guys great info! Why I maxed out my credit cards was because I paid off a repo collection that was recent, now before you all tell me it was a big no no to do, I got a pay to delete option with the collection company I paid $10k got the collections/repo removed from all 3 credit bureaus and 2 months later I applied for a car and got approved fro 9% compared to my old auto loan that I got a repo for that was 27% yeah I know, but I did max out my credit cards to pay off this collections and I think it was a good move, I ended up with a 10k personal loan but it was worth paying off all my credit cards and bring down my uti

Equifax 649 - TransUnion 698 - Experian 666
Cap1 QuickSilver $3,800 / Cap1 QuicksilverONE $1,100 / AMEX BCE $500, AMEX Hilton Honors Surpass $1,000 ,Express $1,700 / Chase Amazon Prime Visa $3,000, Chase Freedom Unlimited $4,000 / Discover IT $500 / Credit One $600 / First Premier $700 / First Premier $650 / Walmart MC $700, Target RedCard Credit $400, Open Auto Loan Balance $21,000 / Open Personal Loan Balance $10,000. 1 open collections on my report for $2,000 from 2014.
Message 4 of 6
Super Contributor

Re: Credit Utilization ...did I just make a HUGE mistake?

Sounds like you have been working hard to think out the best financial steps for yourself at each juncture.  Thinking carefully and trying to make the best decision is a good character trait that is a hard to put a price tag on.  Good for you and best of luck...

Message 5 of 6
New Contributor

Re: Credit Utilization ...did I just make a HUGE mistake?

Thanks, and yes I have been working on my credit for about 2 years now gradually bringing my score up by cleaning up some collections and building a good payment history for the past 30+ months and keeping my UTI to below 5% I went from being a 501 FICO to a 656 thanks to this board! 

Equifax 649 - TransUnion 698 - Experian 666
Cap1 QuickSilver $3,800 / Cap1 QuicksilverONE $1,100 / AMEX BCE $500, AMEX Hilton Honors Surpass $1,000 ,Express $1,700 / Chase Amazon Prime Visa $3,000, Chase Freedom Unlimited $4,000 / Discover IT $500 / Credit One $600 / First Premier $700 / First Premier $650 / Walmart MC $700, Target RedCard Credit $400, Open Auto Loan Balance $21,000 / Open Personal Loan Balance $10,000. 1 open collections on my report for $2,000 from 2014.
Message 6 of 6
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