Installment loan

Anonymous · ‎03-19-2016

Guys I would appreciate some info on some short term loans. I have no installment loans n my CR right now (last paid off car loan fell off my report due to age a couple of months ago). What is the best way to go about it, where to go for the loan, etc.... I would like a smaller loan that I can pay off quickly and reap the benefits of having a installment loan on my reports again. All help is appreciated.

Anonymous · ‎03-19-2016

This thread contains everything you'll ever need to know.

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/...

Anonymous · ‎03-19-2016

I did this recently, as have a lot of members of the forum. Here's a brief overview of the most common approach:

1. Open a savings account with Alliant Credit Union (http://www.alliantcreditunion.org/).

2. Deposit $500 (maybe a few dollars more just so you have a buffer)

3. Take out a share secure loan for $500. Share secure basically means that the $500 in you savings account is the collateral for your loan. Most people opt for a 60 month (5 year) loan which will have a 4% interest rate.

4. Pay down the loan to $44, which is less then 9% of your original $500 loan amount. That's the point where you begin to get the greatest benefit to your FICO scores.

5. Now you can make small payments (some pay $2 every six month) because you are so far ahead in your payments. This is why many people use Alliant -- because they will let you do this. Most lenders would still require you to make the minimum agreed on payment.

Your interest is negligible. During the first year, it'll be 4% if $44 or $1.76. And it will go down from there as you slowly pay it off. Also, once you receive the loan, you can withdraw the borrowed $500, which you can use to replace the $500 you used to open your account. So you really don't have any money tied up except for the week or so that it takes to get the loan.

Here are a couple of threads where this is discussed in detail:

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/...

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Should-I-get-an-installment-loan/td-p/438...

I also know that CreditGuyInDixie (one of the regulars here on the forum) has just worked through the process of taking out this loan and documented the process, so he would be a great resource, as are Revelate and an number of others who have done this.

Anonymous · ‎03-19-2016

How will the loan effect my credit score at first? Big drop?How long to recover? The reason I ask is, I will be shopping for mortgage towards the end of the year. That is one of the reasons I want to beef up my credit reports. A installment loan is one big thing missing on my reports at the moment.... How muuch gain am I looking at score wise for adding the installment loan?

Anonymous · ‎03-19-2016

I was in a similar situation to yours (at least based on what you've shared) except that I did have one old closed installment loan that was still on my reports (it was a mortgage that closed six years ago). My credit report was clean (although a little thin) with FICO 8s in the mid 700s. I took out a share secured loan from Alliant and paid it down to 8.9% before it reported. Here's what happened.

Experian gained 34 points from 729 to 763.

Equifax gained 41 points from 736 to 777.

TransUnion gained 21 points from 779 to 800.

Unless there's something holding back your score (a derog or something like that), you could expect similar results and quite possibily even better as you don't have even a closed installment loan reporting right now (so any points that you lost when your closed installment loan aged off should be back, too).

Anonymous · ‎03-19-2016

Wow, thanks for the info. No baddies on the CR (had a judgment settled and removed from CR last year). Just a thin file/no installment loans showing any longer. I just started on improving my credit score around Oct. of last year (opened up the CC's in my signature below).

Anonymous · ‎03-19-2016

So the balance can be payed down as soon as it is opened? Do you have to keep the savings account active as far as deposits go? Do they HP for openning the savings acct or the loan?

Anonymous · ‎03-19-2016

Yes, the balance can be paid down as soon as it is opened. I think I waited a few days while I figured out exactly what I wanted to do, but I paid it down to 8.9% within a week.

You're not required to make any deposits to keep the savings account open. However, if there is no activity for a year, there is an inactivity charge. (I think it was $10). But if you make a single payment (a transfer) to your loan from your savings account at least once a year, you're covered. And it's simple to make that transfer.

Nope, no hard pull to open the account, and because the loan is fully secured, they don't hard pull for the loan either.

Anonymous · ‎03-19-2016

Thanks for your reply and help. One more question. I see that not everyone can apply for an account, You have to work at a certain company, etc... Do they actually check that?

Anonymous · ‎03-19-2016

Hello OP. I have prepared a step-by-step guide for this. I am almost ready to post it, should be in the next few days. Still making one or two final changes. It's based on the combined experience of all the people who have had experience with this approach and with Alliant.

Would you like me to send you a draft of it as a private message?