Need advice on a new account...

[WRodPSL]

I recently took out a personal loan from my local credit union to pay the balance of my ridiculous 25% car loan. As soon as I paid the car loan off I sold the car. Now I need some advice on how to handle paying off the personal loan. I have enough money from selling the car to pay off the personal loan before the first payment is even due on August 30. Will this hurt my score or look bad on my report for paying it off so quickly? Should I pay 2/3 of the loan on the first payment to knock out most of the interest then pay 6-12 months just to give it some history? The loan was $3300 at 16% for 34 months and they only report to Equifax. Any advice on how it will look best on my report?

[haulingthescoreup]

If it's a simple interest loan, and you don't currently have any other installment products open, it would help your credit mix to pay it almost all off and then dribble the remaining payments out over 12 months or more.

If you can make a good chunk of payment before the statement drops, it will report with a lower installment util than otherwise. I had a big hit the first time my car loan reported, before I'd made any payments, but after that, there were no negative comments, and in fact, I got a positive comment for having an installment loan.

If you have no need to fine-tune your scores, and you think it would be annoying to pay $5/ month for the next 12 months, you can pay it of and not worry about it.

Congrats on ditching the 25% car loan!

[Anonymous]

I do crazy stuff like that to gain an extra 3 points on my credit score. But I'm playing a game. At 16% I'd just PIF it. Your score will drop for the next 2-3 months because of a new account. Paying it off will regain the lost points faster. May not build points but saves money! Your call. You would probably get a few points for keeping it at least 6-12 months. I'd save the money and get a cheaper interest loan if history is your goal.

[WRodPSL]

Yes, its a simple interest loan. My EQ score is at 611 right now and this would be my only installment loan. So would the best thing to do be to pay most of it off but just leave enough of a balance for about 12 monthly payments since I could obviously use the points? Thanks for all your help

[haulingthescoreup]

Since you do want the help to your scores by improving your credit mix, that's what I'd do. You probably ought to run it by your lender, explaining what you're up to, to make sure that it will be OK, and maybe to let them know that you're not a lunatic of some variety. (They should be aware enough of FICO scoring that they will understand what you are doing, and approve.)

If you can get that first big payment, or at least 51% of the balance, paid before the statement date, you can avoid an initial score ding for high installment util. Even if you can't, though, it will go away when your account updates again.

Loans, including mortgages, seem to update a good month behind revolving, so it might be a while before you see anything much happening on your reports.

[WRodPSL]

Great advice...sounds like I should go that route then. Thank you so much