Should I try to fix my 'mix' and my high CC UTL with an installment loan?

[Scamp]

Hi again, everyone.

Wondering if getting some kind of installment loan for the purpose of paying off  my credit card debt might be a good idea, both UTL and ‘mix’-wise:

My credit history is only a couple of years old, avg. age 1 year – starting over after screwing up horribly in my youth.

All I have in my ‘mix’ are cards – AmEx Gold charge card, a Chase Brit Airways Plat, WF Visa and a Macy’s store card – major cc’s nearly maxed out (I know now, I know NOW – working on it), Macy’s now at 42%.

Scores:  TU: 637 (late 02/08), EQ: 635 (late 02/08), EX: 637 (late 03/08)

(These are down from ~738 in 03/07, and TU & EQ may be higher now – EX went up 15 pts when some INQs hit 1 yr this month)

Obviously, my hight UTL is my main killer, along with my short history.  How important is 'mix', in the equation?

I’m fine with just paying these all down to proper UTL over the next several months, but after reading another member’s posting about getting an installment loan and paying off a bunch of cards, I started wondering if this might be a good idea for me as well – not just to fix my UTL issue in a hurry, but from the standpoint of ‘mix’? (I’ve asked in another post under CC’s whether or not my AmEx charge card helps my mix, and I have no installment-type loans because I live by choice without a car and rent an apt.).

If the vote is ‘Yes, it would be a good thing’, would also appreciate advice on exactly what kind of credit line or loan to try to get.

If not, should I look into buying a Moped or something else small down the line to get another type of credit into my mix?

Or am I fine with what I have?

Thanks for any input anyone can provide.

[Anonymous]

Just my opinion....why would you go into debt just to raise your scores?  I would sit tight & pay off CC  without adding more debt.

[Anonymous]

Getting an installment loan will help your score some due to improved mix. I think your mix is about 10-15% of your score. Getting your util down will help your score big time. Using the installment loan to pay down util will therefore help big time. Look at the rate for the install loan, if lower than cc's it will save you money. 

[Anonymous]

HappyDays, Op is talking about getting  an install loan to pay off maxed credit cards. I agree his comments about buying something else with and install loan don't make sense as that will just increase his expenses.

[Anonymous]

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Scamp wrote:

If the vote is ‘Yes, it would be a good thing’, would also appreciate advice on exactly what kind of credit line or loan to try to get.

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First of all, I agree with HappyDays that getting a loan just for the purposes of improving mix is a bad idea.

Mix counts for 10% of your score.  The part of that calculation that is determined by the question of whether or not you have an installment loan is a much smaller piece than that.

Don't forget that a new installment loan just for the sake of improving your mix will result in a new account (reaging your file and hurting your score) and a new inquiry (which will also hurt your score).  Many people who have gotten an installment loan just for the purpose of improving their mix have discovered that those two negative factors ended up hurting them more than the improved mix ended up helping them.

In the part of your post I quoted above, you are asking about what kind of "credit line or loan" you should get in order to improve your mix.  If you decide to do this against our recommendations, keep in mind that a credit LINE will not help.  A credit LINE is revolving, so if you transfer your CC balances to it, all you are doing is moving revolving balances around, which does nothing for your revolving utilization.  A credit LINE will also not help toward mix, since you already have credit cards which are also revolving.

Message Edited by cheddar on 03-29-2008 06:06 PM

Message Edited by Scamp on 12-13-2008 10:01 AM

[Scamp]

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cheddar wrote:

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Scamp wrote:

If the vote is ‘Yes, it would be a good thing’, would also appreciate advice on exactly what kind of credit line or loan to try to get.

---

First of all, I agree with HappyDays that getting a loan just for the purposes of improving mix is a bad idea.

Mix counts for 10% of your score.  The part of that calculation that is determined by the question of whether or not you have an installment loan is a much smaller piece than that.

Don't forget that a new installment loan just for the sake of improving your mix will result in a new account (reaging your file and hurting your score) and a new inquiry (which will also hurt your score).  Many people who have gotten an installment loan just for the purpose of improving their mix have discovered that those two negative factors ended up hurting them more than the improved mix ended up helping them.

In the part of your post I quoted above, you are asking about what kind of "credit line or loan" you should get in order to improve your mix.  If you decide to do this against our recommendations, keep in mind that a credit LINE will not help.  A credit LINE is revolving, so if you transfer your CC balances to it, all you are doing is moving revolving balances around, which does nothing for your revolving utilization.  A credit LINE will also not help toward mix, since you already have credit cards which are also revolving.

Message Edited by cheddar on 03-29-2008 06:06 PM

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Thanks for your response, Cheddar; unfortunately, it didn't really address the main question in my head (which obviously wasn't made clear enough in my post - sorry everyone  ):

To clarify, the main thing I was trying to ask was whether or not getting an installment loan for the purpose of paying off my CC's would be generally a score-improving thing in my circumstances (having very high UTL and extremely short credit history), outweighing the negative effects of the inq and re-aging on my score, not whether I should get an installment loan for something else 'just to raise my scores' (I added the bit about the Moped at the end as a future-reference thing to find out how much the FICO score 'mix' question should weigh in that decision, if/when, and your and HD's responses DID answer that, in spades!).

Would you please give me your thoughts on the above, more specific and clear (I hope) question, if they are different from your more generalized response earlier?

Thank you as well for explaining to me the difference between a credit line and a loan; I purposely phrased it that way hoping I'd get exactly the kind of explanation response you gave me.

Message Edited by Scamp on 12-13-2008 10:02 AM

[Anonymous]

Your best bet is to just pay down what you have.

Even if you took another loan to pay down what you already it wont change you UTI much

Start to pay down what you have over time.

If you have to apply for a loan any time soon you might borrow the money from a family member or friend to pay down your UTI. Once they up date and your score goes up, then apply for the credit that you really need and not what you want.

After being approved for the loan or trade line pay back your family through cash advancing you CC's.

Keep in mind that CC's dont like when there client cash advances, it shows that they are hard up for money. So that could hurt short term for any type of CLI..

Best Regards

[Anonymous]

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chuck_texas wrote:

After being approved for the loan or trade line pay back your family through cash advancing you CC's.

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Taking a cash advance from a CC is almost always a bad, bad, bad idea.

[Anonymous]

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Scamp wrote:

Thanks for your response, Cheddar; unfortunately, it didn't really address the main question in my head (which obviously wasn't made clear enough in my post - sorry everyone  ):

To clarify, the main thing I was trying to ask was whether or not getting an installment loan for the purpose of paying off my CC's would be generally a score-improving thing in my circumstances (having very high UTL and extremely short credit history), outweighing the negative effects of the inq and re-aging on my score, not whether I should get an installment loan for something else 'just to raise my scores' (I added the bit about the Moped at the end as a future-reference thing to find out how much the FICO score 'mix' question should weigh in that decision, if/when, and your and HD's responses DID answer that, in spades!).

Would you please give me your thoughts on the above, more specific and clear (I hope) question, if they are different from your more generalized response earlier?

Thank you as well for explaining to me the difference between a credit line and a loan; I purposely phrased it that way hoping I'd get exactly the kind of explanation response you gave me.

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OK, I must admit that I am guilty of not having read your first post closely enough the first time.  Everything I mentioned in my post above still applies, but in your case I think that getting a debt consolidation loan will help you improve your score.  There are several caveats, though.

Here's why I think it will help:

• Your revolving utilization is very high.  You haven't posted all of your specific numbers, but you did say that several of your credit cards are maxed out or nearly so.  Obviously, the ideal solution would be to pay those cards down significantly, but barring that, moving that debt over to the installment category should give you a very large score increase.
• If you have no open installment loans, a new one will help your mix.
• Your average age of accounts is currently very low (only one year).  The damage there is already done.  A new account will lower your average age, but won't make it much worse than it already is.
• It will probably help your number of accounts with a balance.  If you have, say, five CCs (I'm making that number up) and all have a balance, then moving that debt to a single new installment loan will leave you with only one account reporting a balance out of six total.  This is good for your score.

Now, having said that, here are some very important things to consider:

• If you don't have the financial self discipline to avoid running up your cards again after you consolidate the debt, you will end up in a much worse situation than you are now.  Right now, you have CC debt that you can't afford to pay off immediately, but that's water under the bridge.  If you consolidate that debt into an installment loan and run up your cards again, you will have CC debt AND installment debt that you can't afford to pay off.  Only you can honestly answer the question as to whether you have changed your spending habits enough to avoid getting into a lot of CC debt again, on top of the debt you will move to the new installment loan, but please answer that question for yourself (and honestly) before you make any move.
• You have not mentioned the current interest rates on your existing cards, but if you end up with a loan at a much higher rate than the cards, it will take you longer to pay off and will cost you much more in the long run.  This has nothing to do with FICO scoring, but is probably one of the most important things to consider when deciding whether to make a move like this.
• Make sure whatever installment loan you get is not a CFL.  You don't want one of those.

Neutral:

• You haven't said how many inquiries you currently have, so I didn't factor that into the equation.  Keep in mind that generally, the more you have, the less a new one will hurt.  The only excepion to that is that many people have reported not being penalized at all for going from zero to one.

Hope this helps.

Message Edited by cheddar on 03-29-2008 10:15 PM

Message Edited by Scamp on 12-13-2008 10:03 AM

[Scamp]

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cheddar wrote:

OK, I must admit that I am guilty of not having read your first post closely enough the first time.  Everything I mentioned in my post above still applies, but in your case I think that getting a debt consolidation loan will help you improve your score.  There are several caveats, though.

Here's why I think it will help:

• Your revolving utilization is very high.  You haven't posted all of your specific numbers, but you did say that several of your credit cards are maxed out or nearly so.  Obviously, the ideal solution would be to pay those cards down significantly, but barring that, moving that debt over to the installment category should give you a very large score increase.
• If you have no open installment loans, a new one will help your mix.
• Your average age of accounts is currently very low (only one year).  The damage there is already done.  A new account will lower your average age, but won't make it much worse than it already is.
• It will probably help your number of accounts with a balance.  If you have, say, five CCs (I'm making that number up) and all have a balance, then moving that debt to a single new installment loan will leave you with only one account reporting a balance out of six total.  This is good for your score.

Now, having said that, here are some very important things to consider:

• If you don't have the financial self discipline to avoid running up your cards again after you consolidate the debt, you will end up in a much worse situation than you are now.  Right now, you have CC debt that you can't afford to pay off immediately, but that's water under the bridge.  If you consolidate that debt into an installment loan and run up your cards again, you will have CC debt AND installment debt that you can't afford to pay off.  Only you can honestly answer the question as to whether you have changed your spending habits enough to avoid getting into a lot of CC debt again, on top of the debt you will move to the new installment loan, but please answer that question for yourself (and honestly) before you make any move.
• You have not mentioned the current interest rates on your existing cards, but if you end up with a loan at a much higher rate than the cards, it will take you longer to pay off and will cost you much more in the long run.  This has nothing to do with FICO scoring, but is probably one of the most important things to consider when deciding whether to make a move like this.
• Make sure whatever installment loan you get is not a CFL.  You don't want one of those.

Neutral:

• You haven't said how many inquiries you currently have, so I didn't factor that into the equation.  Keep in mind that generally, the more you have, the less a new one will hurt.  The only excepion to that is that many people have reported not being penalized at all for going from zero to one.

Hope this helps.

Message Edited by cheddar on 03-29-2008 10:15 PM

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Cheddar, thanks so much for revisiting this thread and responding again - enormously helpful.

1)  My utilization - Yep, 2 majors are very high UTL.  Little Macy's card is down to 42% (I think).  See  #3 below for detailed info on my CL's, balances & rates. 

I just recently discovered AmEx isn't reporting right (working on disputing that), so it's making matters even worse right now, reporting as a regular CC, looking like it's maxed out due to no reported CL, and putting my debt-to-credit ratio at 110% with at least one CRA on the last report I pulled earlier this month.

2) Discipline - I didn't know when I started how bad letting those balances get high and stay there would be for my credit score and APR's (at least in some cases).  Found out when WF rate-jacked me last month because I was at about 90% with them and all others.  Planned all along to get them all paid down this year, never went over CL with anybody, have perfect payment history with everyone, just never bothered to get my balances paid down after letting them get high because I had no idea how it could be used against me.

Now that I know what can happen as a result of high UTL, my control-freak side has taken over and I can't get things paid down fast enough to suit me (and keep them in that magical 1%-9% range), so from a discipline standpoint, I should be okay if I do go the installment loan route to pay things off.   Was planning on trying to get AmEx paid off & reporting $0 first to solve the issue of it reporting incorrectly even if disputes don't work or take too long, then start working on WF while still paying at least some over the minimum on everyone else.  From there, I was just going to follow 'best practices' as found in these fora for paying down CC's.

3) Current CL's, Balances, rates:  WF: CL $1500, bal. approx. $1350 at 23.99%; Chase:  CL $2000, bal. 1599 at 14.99 (for now - my 1-yr. anny with them is this month; waiting to see if they rate-jack me, too); Macy's store card: CL $1000, bal. approx. $425 at 22.99; AmEx, though a Gold charge card, currently has a balance of approx. $560 at 15.99% due to my utilizing their extended pay option on some things.  These 4  accounts are the only ones I have of any kind, right now.

4)  On inqs, I have 3 right now - one from getting my AmEx charge card in 05/07, one from an attempt at a CLI w/Chase in 09/07 (denied), and one from switching long-distance phone companies in 11/07 (didn't know about hards for that when I did it or would have avoided switching).

5) Just in case CFL isn't in the Abbreviations post, would you please tell me what that is?  I'm off to check now but know not every single acronym used on here is on that.

6) While I've got you, any chance you can tell me whether or not my AmEx charge card (when I get it reporting correctly) should help my mix, since it's supposed to be coded as 'other account'?  I asked this as an afterthought on another post this elsewhere this morning but haven't been able to get any info on it yet.  Do you know...?

Don't know how much any of the added info will affect your input, but there it is.  Hope I covered everything.

Thanks so much again for all your time, good advice and information, in looking this over for me.