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Personal Loan and Mortgage

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Established Member

Re: Personal Loan and Mortgage

It was 36 months loan. I was not knowing the details of your technique but I did something similar and paid off 90% of loan in first two months. My mistake here was to make "principal only" payment. That triggered the loan to be paid in 8 months and now I pushed it even further by paying-off in full.

I have 6 open credit cards. I use them all but make only one of them to report less than 3% of the limit. Thanks   

Message 11 of 22
Super Contributor

Re: Personal Loan and Mortgage

Great!  Well as far as credit cards go you are more than fine.  No need to get any more cards.  And your reporting strategy for them will be perfect as you prepare for your mortgage pre-approval and then later for the more exhaustive underwriting of the mortgage.

 

Here are the facts, which will help you make the decision that is right for you.

 

*   Your reports will (very soon) be going from (a) having an open installment loan that was almost completely paid off to (b) having no open installment loans.

 

*   This will cause a substantial score drop when your reports register with this new state of affairs.

 

*   That problem can be fixed by adding a new SS loan and paying most of it off.  A slight downside is that your AAoA will go from 1.8333 to 1.6666.  There will be no immediate scoring damage, since you will still be in the range of 1.01-1.99.  But it means that it will take you four more months to cross over an AAoA of 2.0, rather than just two months (if you hadn't added the loan).

 

*   The benefit of the new loan may take a month or two to materialize.  If you were to get started tomorrow on the SS loan, it is quite possible that you could get it approved and paid down to 8.99% before it reports to the credit bureaus on Aug 31.  In that case the benefit might appear by (say) Sept 10.  Otherwise expect to see no benefit until mid-Oct.

 

*   If you do not add the SS loan, however, you will definitely experience significant score damage,   Even when you cross over an AAoA of 2.0, the benefit will still be significantly less than if you added the SS loan.

 

 

Message 12 of 22
Established Member

Re: Personal Loan and Mortgage

Your advice is greatly appreciated. Thank you for all that sound analysis. I wish I would have come across you a day ealier. Anyway, it is better if I move forward and open a SS as you suggest. Best wishes.

Message 13 of 22
Valued Contributor

Re: Personal Loan and Mortgage

CGiD gives great advice.  In this case, I am not sure how good, though.  His advice is absolutely correct for FICO 08 scores.  However, mortgages are underwritten with EQ-04, EX-98 and TU-04 scores.  FICO 04 (EQ-04 and TU-04) do not need an open installment loan.  A closed installment loan will work just fine.  I believe EX-98 may like to see an open installment loan, but I am not sure how important it is for the score. 

 

If the OP is planning on applying for a mortgage in the next couple of months, they may be better off leaving things the way they are.  If they hold off until their AAoA reaches 2 years with the SSL, then I agree getting the SSL would help their EX-98 score.

Message 14 of 22
Established Member

Re: Personal Loan and Mortgage

Thank you for the additional inputs. Does the AAoA take into account all accounts (open as well as closed) from past 10 years?

Message 15 of 22
Super Contributor

Re: Personal Loan and Mortgage


@NMR1973 wrote:

Thank you for the additional inputs. Does the AAoA take into account all accounts (open as well as closed) from past 10 years?


 

Yes.  AAoA is calculated using all accounts, open and closed.   And even after an account becomes closed, it continues to age.  Thus if you close a credit card when it is exactly 1 year old, then 4 years later it will be considered a 5-year old account as far as AAoA is concerned.

 

And this is true for all FICO models.

 

Actually, the more precise answer is that FICO takes into account all accounts on your report at that instant.  You might have accounts that were closed 15 years ago and are still on your report.  This is only slightly uncommon -- it happens a lot more than you'd think.  Likewise you could close an account 2 years ago and the creditor could decide to remove it from your report tomorrow, eight years before that typical ten year milestone.  This also happens much more often than people think. 

 

To address CD's point.... it's a good one.  Note, however, that he acknowledges that one of your three mortgage scores still is affected by having no open installment loans.  And thus, unless you are happy with that CRA having a much lower mortgage score for you, it probably makes sense to do the SS loan.

 

Can you clarify for us when you think you are likely to go through final underwriting on a home purchase?  Do you think that will be before Jan 1 (2017)?

Message 16 of 22
Established Member

Re: Personal Loan and Mortgage

Thank you once again for those details. My respective scores: EQ-04 739, EX-98 755 and TU-04 740. I guess the cutoff most lenders use is 740 and I may soon fall below it.


I am not yet pre-approved for mortgage. I may change job and am waiting for the job offer. If that comes it will be an out of state mortgage that I will looking to close as soon as possible. I believe it certainly will be before 01/2017. Thank you.

Message 17 of 22
Super Contributor

Re: Personal Loan and Mortgage

Well good luck making whatever decision is right for you.

 

It sounds like you have two possibilities.  Getting the SS loan or not getting it.

 

If you do not get it, then you should expect your EX-98 score to go below 735.  (Can't be sure it will but for planning purposes it is best.)  Therefore you'll want the other two scores to be > 740.  TU is now at 740 and EQ is now at 739.  So you need one more point in EQ.  You can't squeeze it out from your credit cards since you are already perfect there.  In this scenario you are not getting it from Mix either.  Best approach is to wait two more months and hope to get it when your AAoA goes > 2.0.

 

Note that this approach assumes that there will be zero downside to your EQ and TU mortgage scores from losing open installment debt that was reporting at < 9%.  CD is likely right about that, but it is an assumption you'd be making.

 

If you do get the SS loan, then you should expect no harm to your score due to an inquiry or to a lowered AAoA.  Alliant has no hard pull and your AAoA would remain in the 1.51 - 1.99 range, which should be scored the same.  (In fact, AAoA should be scored the same for anything in the 1.01 - 1.99 range).  It would still be a "new account" which in theory can cause score harm outside of AAoA impact and inquiries but since you have so many new accounts anyway perhaps it doesn't matter. 

 

In this approach your three scores stay the same (that's an assumption... see what I just said) and you get your two scores above 740 from EX and TU.

 

A third possibility is to make the following decision now:

 

      If I am offered a new job in a different state, with the job starting before Oct 31, then I will rent a cheap place for three months once I move while I scout around for homes I might want.

 

If you make that decision now, then you could be certain that you will not buy before February and then the SS loan now is a slam dunk.  (It also gives you the advantage of actually living in the city while you are looking at possible homes.)

 

Those strike me as all the relevant options.  Listen to any advice you get from CD too.  He's absolutely no dunce.  Regradless I am sure you will do what is best for you.

Message 18 of 22
Established Member

Re: Personal Loan and Mortgage

Thank you CreditGuyInDixie for analyzing my situation. I know the third option is most sane but I am likely moving North with a big dog and collection of rare plants so renting a house may not be easy but probably worth trying. 

Message 19 of 22
Super Contributor

Re: Personal Loan and Mortgage

Depending on how far north you are moving, you may very well find that the city you are moving to has "snow birds" -- i.e. retired people who's primary residence is in the north, but who take a rented house in Florida during (say) Nov-Feb.  This would mean that their primary house up north stands empty in the winter.  Such people might well be willing to rent their place at a bargain rate during that time.  A nice feature for you is that it matches the exact period you need it for.

Message 20 of 22
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