Installment Loans vs Revolvers

[CreditCardDiva]

How do installment loans count towards utilization...or do they? I'm assuming it would be about debt to income ratio. Help me out, please.

[enharu]

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@CreditCardDiva wrote:

How do installment loans count towards utilization...or do they? I'm assuming it would be about debt to income ratio. Help me out, please.

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installment loans do not count towards utilization.

most credit card issuers do not care as much about installation loans, unless the amount owed is excessively high compared to your income. So, it will not affect your FICO scores much.

installment loans however will affect your DTI ratio, which is something lenders look at.

[CreditCardDiva]

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@enharu wrote:

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@CreditCardDiva wrote:

How do installment loans count towards utilization...or do they? I'm assuming it would be about debt to income ratio. Help me out, please.

---

installment loans do not count towards utilization.

most credit card issuers do not care as much about installation loans, unless the amount owed is excessively high compared to your income. So, it will not affect your FICO scores much.

installment loans however will affect your DTI ratio, which is something lenders look at.

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Exactly what I thought....thanks enharu!

[Anonymous]

Installment loans don't effect your utilization. Unlike revolving debt where there is no set payment other than an extremely low minimum payment, installment loans tend to have specific payments. Thus, your installment loans won't effect your utilization and will have a minor effect on your credit score (new account, inquiries, etc). Installment loans will effect your ability to get other loans though because creditors will see your obligations. For example, anyone who pulls my credit will see that I have ~2k/month in student loan bills for the next 8-9 years (10 year plan). When factoring my ability to buy something, lenders will take into account that I have 2k less disposable income than someone without the loans I have. Similarly, a mortgage or car loan will effect your debt to income ratio, but lenders primarily care about your periodic payments for installment loans and not the total outstanding debt due.

Revolving loans are different because the minimum payments are not high enough and the revolving credit is not meant to be used for long-term loans. Basically people who don't PIF their credit cards are in some amount of financial distress, even if it is merely short-term financial distress. Thus, high utilization of revolving credit is a major risk factor while lots of installment loans is seen as less of a risk. Now if I earned 40k a year and had a 2k installment loan payment, my credit score might remain high but no lender would lend to me. Installment loans effect a lenders willingness to lend to you due to your ability to pay, but they don't have the significant negative impact on your credit score that revolving debts would have. 

[CreditCardDiva]

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@Anonymous wrote:

Installment loans don't effect your utilization. Unlike revolving debt where there is no set payment other than an extremely low minimum payment, installment loans tend to have specific payments. Thus, your installment loans won't effect your utilization and will have a minor effect on your credit score (new account, inquiries, etc). Installment loans will effect your ability to get other loans though because creditors will see your obligations. For example, anyone who pulls my credit will see that I have ~2k/month in student loan bills for the next 8-9 years (10 year plan). When factoring my ability to buy something, lenders will take into account that I have 2k less disposable income than someone without the loans I have. Similarly, a mortgage or car loan will effect your debt to income ratio, but lenders primarily care about your periodic payments for installment loans and not the total outstanding debt due.

Revolving loans are different because the minimum payments are not high enough and the revolving credit is not meant to be used for long-term loans. Basically people who don't PIF their credit cards are in some amount of financial distress, even if it is merely short-term financial distress. Thus, high utilization of revolving credit is a major risk factor while lots of installment loans is seen as less of a risk. Now if I earned 40k a year and had a 2k installment loan payment, my credit score might remain high but no lender would lend to me. Installment loans effect a lenders willingness to lend to you due to your ability to pay, but they don't have the significant negative impact on your credit score that revolving debts would have. 

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Thanks, Random83!

[RobertEG]

Installment loans do count in scoring of utilization.  The Utilization of Credit category is generic to both Installment and Revolving credit.

However, since scoring of installment is weighted much lower than revolving and since the principal is pretty much set at contract, for practical purposes, revolving is what usually counts.. The weighting seems to be highely skewed, with a guess being 90% based on revolving, and 10% on installment.

Percent utilization is a different matter, as it refers only to your percentage of use of your revolving credit limit.

Installments dont have a % util, they have a % remianing of original principal of the loan.