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Disadvantage to SSL credit enhancement

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SouthJamaica
Mega Contributor

Disadvantage to SSL credit enhancement

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.

 

 


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 1 of 10
9 REPLIES 9
Mr_Mojo_Risin
Senior Contributor

Re: Disadvantage to SSL credit enhancement


@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. 

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Message 2 of 10
SouthJamaica
Mega Contributor

Re: Disadvantage to SSL credit enhancement


@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 Smiley Happy  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.

 


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 3 of 10
Mr_Mojo_Risin
Senior Contributor

Re: Disadvantage to SSL credit enhancement


@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 Smiley Happy  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.

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Message 4 of 10
Anonymous
Not applicable

Re: Disadvantage to SSL credit enhancement

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

Message 5 of 10
Anonymous
Not applicable

Re: Disadvantage to SSL credit enhancement

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. 

 

 

Message 6 of 10
GrandBay
Frequent Contributor

Re: Disadvantage to SSL credit enhancement

@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? 

Message 7 of 10
SouthJamaica
Mega Contributor

Re: Disadvantage to SSL credit enhancement


@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.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 8 of 10
gdale6
Moderator Emeritus

Re: Disadvantage to SSL credit enhancement

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.

Message 9 of 10
Yasselife
Valued Contributor

Re: Disadvantage to SSL credit enhancement

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.






Message 10 of 10
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