Loan to help credit diversity

[stinastina]

I disagree with Andy. If this is your only loan, then you will likely see a 20-30 point increase, provided you pay the loan down 91% before they report. The proof is in the thread about share secured loans.

I would have not have told the Alliant rep all that you did. It wasn't necessary and they only proved that they know nothing about credit mix.

[AndySoCal]

The impact of the new account and the inquiry will lower the score and not raise it.  FICO has score reason codes related to recently open accounts.

[stinastina]

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@AndySoCal wrote:

The impact of the new account and the inquiry will lower the score and not raise it.  FICO has score reason codes related to recently open accounts.

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You're still wrong. Read the first post in this 182 page thread.

https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Sec...

[AndySoCal]

It may work for a particular FICO model (not convinced and not named which model of FICO 8 it works for) but not guaranteed accross the board. If you are interested in getting a home FICO 8 is not used there older models. The older models it will not help your score hence the reason I supplied the FICO score reason guide.  I would need to see a lot more data than this to convince me.

[Anonymous]

Hi Andy.  Our OP is not readying himself for a home purchase.

The Share Secure Loan Technique has two parts, both essential.  The first is to get a loan.  The second is to pay off almost all of it at month 1 but still keep it open for the entire term of the loan (e.g. five years).

This has been tested hundreds of times.  When someone has no open loans of any kind (and the Technique is intended only for such people) it has been shown to raise their FICO 8 scores by 25-40 points.  The most recent thread about this is here:

https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-paid-down-loan-is-rocket-fuel-to-...

The SSL thread an earlier commenter gave you gives hundreds of case studies.  Post #2 in that thread explains how FICO 8 scores installment loan utilization..... it's the drop from 100% to under 8.99% that gives most of the benefit.

[AndySoCal]

Yes in that same thread there are reports when the intial reporting of the new loan was reported the scores when down.  Which is exactly my point. To spend money to add a loan type is ridiculus in my opinion. If I were to add this loan type and recieve the points stated I would come very close to a perfect FICO score( do not believe it).  I have a simple philosphy of dollars beats points. In my case I would be approved for almost any loan that I could prove I could repay.

[Anonymous]

OK Andy.  It's fine that you, if you had no open loans, would not yourself wish to implement the SSL technique and gain the extra 30 points (roughly) for your FICO 8 score.  As you say, you have very good scores already.

On the other hand, no one is pushing you to do that, or even gently suggesting that you do that.

What is a problem is when you confidently tell others that there is no scoring advantage and then, when gently corrected by others (e.g. stinastina), dig in your heels.  A better reply might be, "Well I don't see a need for it in my own situation, but I see now that I may be mistaken about the scoring impact -- maybe I didn't understand the part where you pay down the loan."

A lot of newcomers and even experienced folks have gotten real value out of the SSL technique (or its cousins).  There are lots of things here on the forum about which the scoring experts are divided and have (good-natured) disagreements.  The SSLT is not one of them -- Revelate (who discovered it), Thomas Thumb, SouthJ, BBS, iv, and many others are in total agreement in terms of how it works, based on hundreds of empirical cases (coupled with reason codes).  They also base it often off of hundreds of cases of people who have exactly one loan that is mostly paid off, they make the final payment, and then their FICO 8 score drops by roughly 30 points.  Not everyone implements the SSLT themselves, but none of those people deny that it does work basically as advertised for someone who wants to take the time to execute it.

PS.  You mention that "To spend money to add a loan type is ridiculus."  In case there is still a confusion on your part, the SSLT involves the person spending almost no money at all.  Again, the key is in paying down the loan to a low balance at month 1.  This results in paying only a couple dollars per year in interest, typically.  You may still feel that anyone willing to purchase (at $2 per year) an additional 30 points to his FICO 8 score is ridiculous, regardless of his situation, but I just thought I'd clear that piece up in case you thought the cost was more than that.

[AndySoCal]

My FICO scores are over 800 most likely will sink below that for a while due my new credit card. The points for the loan will be there while the loan is open. The loan once it is paid off the points will go away. Plus it does not work for all FICO models.

[Anonymous]

Hi Andy.  My comments below in blue.

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@AndySoCal wrote:

My FICO scores are over 800 most likely will sink below that for a while due my new credit card.

The points for the loan will be there while the loan is open. The loan once it is paid off the points will go away.

Yes.  The SSL Technique says exactly this.  The technique is for people with no open loans, or people who are about to pay off the only loan they have.  The person opens a loan, pays off almost all of it at month 1, and then keeps it open for the full term (e.g. five years).  It's important to keep it open for as long as possible so that you don't have a score drop when it gets paid off.

Plus it does not work for all FICO models.

Yes.  The SSL technique does not work for all FICO models.  For example, the mortgage models.  This is mentioned in the writeup the other commenter gave you.   We always discourage a person from using the technique as a mortgage prep stategy, except in the case where the person has no installment accounts of any kind, open or closed.

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[Gmood1]

I've had 3 members in my household to use the SSL technique. It helped them all.
Any negative affect of adding the loan is more than washed away by the positive gains.
800's don't guarantee approvals. File diversity and age count more IMO.