Installment loan to boost score

[Anonymous]

Hi,

I have 5 open credit cards, all in good standing. No other open accounts.  1 closed mortgage (paid off successfully after a few years by selling house).  1 closed CC.  4 closed "Other" (these were very short-term high APR loans from OppLoans.com (Opportunity Financial).  Current scores are around 730.    Current overall credit (all revolving) utiliziation is 21%.

I just signed up for the NerdWallet free account, and it is telling me the following tips for boosting my scores:

+80 points for Get a new auto loan with an amount of $10,000

+65 points for Get a new personal loan with an amount of $10,000

My objective is to boost my personal FICO scores as high as possible over the next few months, and then apply for a business loan of a substantial amount at LendingClub (they will do a personal credit check & personal guarantee requirement for this).  Basically, my personal credit score when I apply for the business loan can have a large impact on the deal I get for the business loan.  With this in mind, NerdWallet's recommendations seem very attractive.  Is it realistic that I stand to gain 80 points or 65 points by getting an auto loan or a personal loan (which I assume is an installment loan)?  I am looking at Upstart for the personal loan which would accomplish this for me; I've gotten preapproved by them for a reasonable rate.  So would it be a good plan of action to take out the personal installment loan, use that money to pay down my revolving utilization on CCs' to 0%, wait for a huge score boost, and THEN apply for the business loan?      On the other hand, counter to NerdWallet's recommendation, a BankRate.com article (http://www.bankrate.com/finance/credit/debt-consolidation-hurt-credit-rating.aspx) warns of the following:  "Moving the balances of your credit card accounts into an installment loan for purposes of consolidation may cause a slight drop in your credit score. The principal reason is you will have a new inquiry and huge installment loan appear on your credit report, even though you also will have much lower debt-to-credit ratios on your credit cards. The potential underwriting risk that you present to a new lender is measured in conjunction with your credit score and will now have to incorporate that you have the chance to begin adding to your credit card balances again. And the fact that many people do just that is why the action will temporarily cut your rating."

So which way do I go? :/     Does NerdWallet think I stand to gain so many points because right now the only type of accounts that I have are CC/revolving, and an auto/personal loan would diversify the account type mix?  Or are they expecting me to take that money and pay down my CC debt (I think this is NOT it, because as I increase the personal loan $ amount in the NerdWallet simulator, the forecasted point gain actually slighty GOES DOWN!)?

THANKS!!!

[Revelate]

You won't get that many points for paying down your revolving utilization (unless you're maxxing out a bunch of small limit cards and even then I find that unlikely).

You would gain some points by getting an installment AND paying it down when we're talking FICO 8, but you can pull the typical share secured loan trick which is well documented on this forum.

What's keeping your score down anyway?  Nerdwallet was Vantage I think?

[Anonymous]

All simulators (CK, Experian, Credit Journey, NerdWallet), etc say I'll gain about 70 points (and be close to 800) if I pay down all of my current balances. I think getting the installment loan would allow me to do that? My utilization is 15K/70K. Experian reports negative factors as too few accounts (only have 5 open CC accounts), and serious delinquencies (I have a 30+60 day late about 1.5 years ago). But when I put "pay all bills on time for 24 months" in its simulator, I get no point increase, so I don't think it's the delinquencies holding me down. It's most likely utilization or no diversity of open accounts. Just wondering why NerdWallet would say I could gain 80 points by opening an auto loan, even a $2 one?

[Anonymous]

Dovetailing on what Revelate just said...

The true best course of action is to do both of the following:

(1)  Pay All cards to Zero Except One (AZEO), with the remaining card having a small balance ($20, whatever).

(2)  Implement the Share Secure Loan Technique.  The first 2-3 posts here will tell you everything you need to know about it and why it works. 

Finally, as R points out, you talk about having scores around 730.  It's important to know where these scores are coming from.  The best model for you to take a look at initially is FICO 8 Classic.  If your scores are instead Vantage Scores these could be very different.  A cheap way to get all three FICO 8 scores would be the $1 trial offer at Credit Check Total.

[Anonymous]

I should add my revolving util is 50% on 2 of my cards, and none on the rest. One of the cards has 0/39K usage... this is the one card which gives me such a high overall limit.

[Anonymous]

Looks like you just posted a reply at the same time I did. 

Do you have any cash available to pay down the CC debt -- apart from what you would get from a large personal loan?  If so, one possibility would be paying down the two big CC debts down to < 49% individually or better still 29%.  It's quite possible you are receiving a penalty for having individual utilization at 50%.

Thus maybe the best strategy would be to pair using available cash to pay down the CC debt a bit while implementing the SS Loan Technique.  The SSL trick should get you about 30 points.

All this said it is really important that you make sure you are getting true FICO 8 Classic scores.  Many of those websites you mention are providing you Vantage scores.

PS.  Ignore what the simulators say about the importance of having an auto loan.  The SSL trick will be far cheaper and better.

[Anonymous]

I don't have cash available to pay down the CC debt right now. I need a boost in the very short term (2 months or less). If the simulators are saying that I'll get 70 points by paying down all of my revolving balances, then I think the installment loan (which is a 1-3 day approval+funding) & full CC payoff, is the way to go...

The rates on the installment loan are lower than the CC rates anyways...

Mostly I was just curious by what logic my score would go up 65-80 points just by opening an auto or installment loan (NerdWallet's simulator says even a $2 loan in either category would give me said boost). Also it's telling me I have more points to gain by opening the auto loan over opening an installment loan.

[Anonymous]

If you have decided what you are going to do, then best of luck.

If you are willing to talk about it a bit more, then I encourage you to do that with us.  I am concerned that you are making a major choice based off of credit scores that are likely not FICO 8, and that you are also expecting a score boost based on what a simulator says, and they are often unreliable.  Revelate and I are skepical that you would get a 70 point boost to a 730 score by going from 21% CC utilization to 1%.

My advice would be to pull your three FICO 8 scores at Credit Check Total for $1 and then circle back with us.

[Revelate]

Simulators simply aren't good predictors of score.

800 with a 1.5 year old 30/60D, that's a serious stretch when talking FICO even if you have an absurd amount of credit history backing it up.  A 60D doesn't drop you into the severe derogatory buckets where anything abouve a 750 is the 99th percentile, but with the presence of it.... my TU is optimized except for installment utilization (mortgage balance no bueno) with a 1.5 year old 30D late, and a near 7 year old 60D late, so somewhat comparable files, and I don't crack 760 FICO 8.  I'm not in a pretty bucket yet, if I were fully clean I'd be on the order of 780-800, certianly would be 800 if my installment utilization didn't suck.

Incidently yours will too as soon as that loan closes: if we're talking paying off higher APR credit cards by all means do what's right financially, but expecting 70+ points for paying down limited revolving utilization and having a brand spanking new installment loan, that's just doubtful.  If the simulator was talking Vantage, well actually that's kinda doubtful too frankly.  Simulators suck, don't trust them is the moral of the story here.

Out of curiosity what's your age of oldest tradeline and your average age of accounts?

[Anonymous]

So, strangely, the simulators are saying that if I *also* pay down all of my credit card balances IN ADDITION to getting an auto loan or an installment loan, then I'd gain 20 points less than if I took out the loans and did NOT pay anything down.  Very strange!   But yes, I can agree with you that the simulators are generally unreliable.  But I should say that in MY experience, they have been very close to reality, even with some strange situations with seemingly unrealistic predictions.   (Not to be combative with you; I'm just stating my personal experience).

Trade line ages:

Average age of Credit history: 8 years 6 months

Account ages:
American Express (Authorized User):  18yrs, 5 mos

Wells Fargo Card   9 yrs, 6 mos

American Express: 9 yrs, 2 mos

WELLS Fargo Card (Authorized User):  7 yrs, 11 mos

Discover:  3 yrs, 6 mos

Cap1: 2 yrs, 10 mos

I had my util hovering close to 50% for about 3 years (40K/80K), and in the past few months, got the chance to pay it all down very aggressively (16K/80K remaining).  I'm guessing that they have basically sensed that I'm able to take on large amounts of debt for long periods of time and then get a lot of it paid down, so now I'm considered a great credit prospect.