Installment Loan strategy

[Anonymous]

We are in the planning stages for purchasing our first home and see that we are getting this reason code on FICO8 and 2 -  "The remaining balance on your mortgage or non-mortgage installment loans is relatively high." Most of the tradelines have a significantly greater outstanding balance as compared to original balance, so I know we need to do something. We have $50k budgeted to put towards these balances, what recommendations do you have in order to have the most productive impact on mortgage scores? Thanks!

Loan	Original	Outstanding	Interest	% of  original
Group A	$25,525.11	$30,166.90	3.125	118
Group B	$52,322.82	$66,187.39	3.125	126
Group C	$1,998.00	$111.09	8.25	5.5
Group D	$8,500.00	$10,426.39	6.55	122
Group E	$12,000.00	$17,390.67	6.55	145
Group F	$5,121.00	$7,494.94	8.25	146
Group G	$8,500.00	$10,175.99	6.55	100.3
Group H	$12,000.00	$16,360.64	6.55	100.3

[dragontears]

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@Anonymous wrote:

We are in the planning stages for purchasing our first home and see that we are getting dinged for high outstanding balance as compared to orginal balance on intallment loans (student loans). I see the reason as "The remaining balance on your mortgage or non-mortgage installment loans is relatively high." Most of the tradelines have a significantly greater outstanding balance as compared to original balance, so I know we need to do something. We have $50k budgeted to put towards these balances, what recommendations do you have in order to have the most productive impact on mortgage scores? Thanks!

Loan	Original	Outstanding	Interest	% of  original
Group A	$25,525.11	$30,166.90	3.125	118
Group B	$52,322.82	$66,187.39	3.125	126
Group C	$1,998.00	$111.09	8.25	5.5
Group D	$8,500.00	$10,426.39	6.55	122
Group E	$12,000.00	$17,390.67	6.55	145
Group F	$5,121.00	$7,494.94	8.25	146
Group G	$8,500.00	$10,175.99	6.55	100.3
Group H	$12,000.00	$16,360.64	6.55	100.3

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Are you looking at mortgage scores or FICO8 for the reason code?

What are the other reason codes? 

In general, paying down loans doesn't affect mortgage scores. 

[Anonymous]

FICO8 and FICO2 have this reason code. 

Also states that I have limited use of available revolving credit and an established credit history.

Would paying off some of those loans possibly improve the mortgage score?

[FireMedic1]

What is your overall revolving credit %? If its high. Revolving credit %'s hurts scores more than loans. You'll want to be AZEO before loan time. Or all Accounts Zero Except One. I'm just tackeling the revolver side for now from the 1 comment you got back.

[Anonymous]

Revolving credit is at 1%. 

[FireMedic1]

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@Anonymous wrote:

Revolving credit is at 1%. 

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Well there goes that comment from the CRA. "limited use of available revolving credit" Gonna study the amounts.

[RSX]

for the first step i would do this

This gets everything down to 100% - and Group C to 0%

Group A	$4,641.00
Group B	$13,864.00
Group C	$111.00
Group D	$1,926.00
Group E	$5,390.00
Group F	$2,373.00
Group G	$1,675.00
Group H	$4,360.00
	$34,344.00

Then i would do a second round 

which will get all accts to 87% usage

Group A	$3,318
Group B	$6,801
Group C	Paid off already
Group D	$1,105
Group E	$1,560
Group F	$665
Group G	$1,105
Group H	$1,560
	$16,115

That uses up your $50k

now attack them either based on lowest balance first or highest interest first - your choice

Good Luck!

to do it in 1 payment, here are the full totals to get you directly to 87%

Group A	$7,960.05
Group B	$20,666.54
Group C
Group D	$3,031.39
Group E	$6,950.67
Group F	$3,039.67
Group G	$2,780.99
Group H	$5,920.64
	$50,349.95

[FireMedic1]

Loan	Original	Outstanding	Interest	% of  original
Group A	$25,525.11	$30,166.90	3.125	118
Group B	$52,322.82	$66,187.39	3.125	126
Group C	$1,998.00	$111.09	8.25	5.5
Group D	$8,500.00	$10,426.39	6.55	122
Group E	$12,000.00	$17,390.67	6.55	145
Group F	$5,121.00	$7,494.94	8.25	146
Group G	$8,500.00	$10,175.99	6.55	100.3
Group H	$12,000.00	$16,360.64	6.55	100.3

I went with the higher interest loans to be paid off in red which totals around 35k. Anything over 100%. I'd go for 80%. It would cut the loans in half.

But this is my disclaimer:

If I did a 12 lead EKG and placed it in front of 12 Cardiologist's. I'd get 12 different diagnosis.

See what others have up their sleves.

[Anonymous]

Thank you both for your ideas! My concern with paying off a tradeline entirely is that it could cause scores to drop if an account is closed - do you know if this is the case with student loans?

[RSX]

you only need 1 loan to fulfill the Credit Mix part of your report

so until you payoff the very last loan, you should only see score INCREASES, not a decrease

you may not know how much those loans over 100% are hitting your score - but you will soon! (for the better by the way)