Adding an installment loan -- the Share Secure technique

[shakalaka]

Thanks for the detailed guide. I bank with them since 2012, so I didn't have to apply for membership first. It took me 2.5 hours from appying for the loan to getting it finalized and funded. Now waiting for the loan hitting my report. Let's see if it gets me closer to the 800 

[yapsalot]

Thanks CreditguyInDixie for the analysis and detailed instructions!

I set up the Alliant savings account yesterday, and will proceed with setting up the loan next week. I think this is going to help my score because I have only one installment loan, a student loan, paid off in 2009, and only one open credit card account. So I might get a score bump for both credit mix and the additional trade line without incurring a hard pull. My FICO score is now between 780 and 790 on the three credit bureaus, so I suspect that my score will be relatively sensitive to the addition of an open installment loan and an additional credit line.

My hope is that adding an installment loan will improve the mix of credit and create a low utilization credit line sufficeint to add 10 or 20 points to my FICO score pushing it over 800, which has been my goal since joining myfico.com two months ago. This is an elegant, inexpensive and quickly employed technique that just saved me a ton of time and money because I was considering taking out an otherwise unnecessary loan for a much larger amount under the mistaken belief that a larger credit line would have a bigger impact on my FICO score. Thanks again!

[Anonymous]

Hey Shakalaka and Yapsalot -- you are both welcome.  Delighted to hear that this may be a help to you.

Quick questions for Yapsalot.  Do you happen to know what your AAoA is as of today?  (I.e. prior to the Alliant account being added.)  Remember that closed and open accounts (i.e. ALL your accounts) count when you are computing your AAoA.

It would be useful to know your AAoA immediately before the account is added.  Once you know that you should be able to compute what it will be immediately after the new account appears.  I am curious to hear whether your AAoA crosses an integer value when the new account is added.  For example, if it goes from 3.2 to 2.9, it is crossing the integer value of 3 -- and you should expect a score penalty there, a penalty that will go away once your accounts age a bit and you cross back over the 3.0 threshhold.

By way of contrast, if your AAoA went from 3.6 to 3.1 (for example) there would be no scoring penalty at all, since no integer was crossed.  In such a case we can more easily isolate the scoring benefit you are getting.

Final note to Yapsalot: since you have exactly one open credit card, you will also benefit a lot by slowly adding 2-3 more cards.  That will help you with certain scoring factors that it is not possible to score well on with only one card.  it will also add more depth to your profile, which simply means "number of accounts."  FICO and Vantage Score both like it when a person has more than just a few accounts.  You don't need dozens of accounts, and they don't all need to be open.  (Closed accounts count toward credit depth too.)  A reasonable goal for a person with a very small number of accounts is to gradually build his profile until it has at least six accounts total, closed and open.  More is fine too (e.g. 7, 8, 9, etc.) but once your profile has a certain thickness you won't  get any special scoring advantage for it being thicker.

[yapsalot]

CreditGuyInDixie,

Here's the data I have on my AAofA:

CB       Date                AAofA                         Data Source

EQ       2-22-16                        26 years 0 months       from MyFico.com based upon report of 2-22-16

EQ       4-16-16                        22 years 9 months       from EQ report directly from EQ on 4-16-16

EX       4-13-16                        23 years 10 months     from EX report directly from EX on 4-13-16

EX       4-14-16                        28 years 3 months       from MyFico.com based upon report of 4-14-16

TU       2-7-16              not listed                      from TU report directly from TU on 2-7-16

TU       2-22-16                        26 years 5 months       from MyFico.com based upon report of 2-22-16

What's perplexing is the differential between the AAofA depending upon the data source. For example, regarding Experian, my AAofA is nearly 5 years apart between the data directly from my EX report and the data on Myfico.com even though the reporting date is only one day apart. Right now I only have one open account, a Bank of America Master Card, but I do have a lot of closed credit card accounts. I guess the differential in AAofA could be explained by Myfico.com and Experian's use of a different method of calculating AAofA, but I just don't know. In any event, I should be able to compare the AAofA before and after opening the Alliant account using the each of the separate data sources which may provide some information about the effect of the new account on AAofA.

A few days ago I applied for and was approved for an American Express Blue Cash Everyday card with a limit of $25,000. Of course, it hasn't been reported to any credit bureau yet, but I can pull reports as soon as it starts reporting to learn the effect it has on my AAofA and the corresponding FICO score. I am assuming that I will get an alert when the new account starts reporting  from Myfico.com, EX and EQ because I have subscriptions to all three. Likewise for the Alliant account. So I should be able to isolate the effect on the AAofA for both new accounts and its impact on my FICO score.

The only open account I now have is a Bank of America Master Card with a limit of $30,000 opened in February 2007, so it's been open 9 years and 2 months. I do want to get maybe 6 or so open accounts. I don't intend to do so right away though. I want to see the effect on my FICO score of the two new accounts. Once my score recovers from the two new accounts, then I will proceed to get additional accounts. I made a huge mistake about 10 years ago when I closed the 6 or 8 credit card accounts I then had and went with the Bank of America account as my only credit card. I mistakenly believed that closing accounts that I didn't regularly use was a good idea. Recently I learned on this forum that the better course of action is leaving unnecessary accounts open by occasionally using them.

What's really interesting about what you and other posters are doing is attempting, in a way, to reverse engineer the secretive FICO score. Fair Isaac has a propriety scoring system that largely controls the issuance of consumer credit in America. An individual consumer generally has access to only his own credit data but not the data of other persons limiting the ability to divine the effect of credit data changes on the FICO score. On the other hand, Fair Isaac has access to nearly all consumer credit data in America and has used that data to establish its scoring system, which must be reliable because so many lenders use it. As consumers we have some access to Fair Isaac's methodology, via Myfico.com, and its Score Simulator, for example, but not the effect of every action on our FICO score. Here's a really good example: Fair Isaac discloses through its website and its Score Simulator, that adding an installment loan will improve the mix of credit and thereby elevate the FICO score. But it does not disclose that the amount of the installment loan is irrelevant to the improvement of the score. That knowledge is crucial to me because I was about the undertake an installment loan for a relatively large amount, that I do not otherwise need, for the sole purpose of elevating my score so I can get a better interest rate on a home mortgage that I intend to take out in a year or so. Yet I was able to learn on this forum that the additional expense of a large installment loan was unnecessary because a $500 loan will trigger the maximum effect on score improvement via the presence of an installment loan. Poster's on this site have been able to divine that by communicating among themselves. Some of the posters on this site are getting data from consumer side, from consumers, like me, and are using those experiences to figure out the effect our credit actions will have on our FICO score and spreading that knowledge to others, like me, who can greatly benefit from it. I think that's exciting and fun!

I am looking forward to better management of my credit and will keep you and the forum posted on the effect my tiny installment loan has on my FICO score and the issue of AAofA.

[Anonymous]

Hi Yapsalot.  I can't promise you that you will receive an alert as soon as a new account appears on a CRA.  The only credit monitoring services I am personally a subscriber to are Credit Karma and Credit.com (both free, plus the free monthly FICO scores I receive from my credit cards).  Karma and credit.com rely on the consumer choosing when he wishes to pull his report or score, rather than a passive alert system.  I can tell you, however, that a significant portion of the posts on the myFICO forum are from people who assume that any change to their report will result in an alert from the myFICO monitoring product, which is not true, and which leads them to misreading the alerts they do receive.

It sounds like you closed a bunch of old credit cards ten years ago.  My sympathy for your situation -- you are not to blame and you were doing what you thought was the right thing to do.  If you are correct in assessing your AAoA (roughly 22-26 years) then you must have a lot of very old closed credit card accounts which are helping your AAoA a great deal.  These accounts will be dropping off your reports very soon, however.  At that point both your AAoA and your AOA (Age of Oldest Account) will drop hugely.  This might happen very soon (probably when the closed accounts become 10 years old, give or take a couple months).

Because of that, and because your scores are reasonably high now, I would consider adding two more credit cards and the share secure loan with all reasonable speed, and allow science to go to hell.  (By which I mean don't try to carefully spread your new accounts out so that you can precisely assess the score impact of each.)  You need to apply for the new cards you want soon, before your AAoA and AOA become much much smaller than they are now (which they will do when all those closed accounts drop off)  Take the time to research the cards you want so you choose cards you really like, but don't take much more than that.  Your huge AAoA and large number of accounts will be more than adequate to absorb the shock of the new credit cards, whether you add 2, 3, or even 4 more cards.  There are some nice promotions out there too.

Do you know when the closed cards will be turning ten years old?

Feel free to create a new post and get some advice from other folks too.  But I am pretty sure now is the time to get your new cards, before your AAoA plunges.

[jamie123]

@yapsalot

You need to understand why people are recommending that you apply for more credit cards...

1. An important part of the FICO scoring model is the percent of cards reporting a balance. FICO nicks points if you have 50% or more of your credit cards reporting a balance.

2. To get your highest FICO scores you need to have one card report a balance that is less than 9% of its credit line and NOT $0. I lose 18 points if all of my credit cards report a $0 balance versus having one card that reports a small balance.

If you only have 1 CC you will either lose points for having 0 cards reporting a balance or 100% of your cards reporting a balance if you let it report a small balance. It has been proven on these forums many times that to achieve the highest scores that you should have at minimum 3 credit cards for these reasons.

By having 3 credit cards you can have 1 card report a small balance of less than 9% of its credit line, your other cards reporting $0 and you will only be at 33% of your cards reporting a balance. It's a win win situation.

And like CreditGuyInDixie mentioned, once your old closed accounts start dropping off your reports at the 10 year mark your scores will probably drop significantly. You need to get moving on having at least 3 credit cards. Your Average Age of Accounts is about to take a big hit.

[yapsalot]

Hi CreditGuyInDixie,

I just did an analysis of all of my accounts and learned that I have no closed accounts falling off my credit reports for 2016. In 2017 I will lose two accounts, one opened in 1985 and one opened in 1991. In 2018 though, it will be a disaster. I will lose 7 accounts: one opened in 1979, one opened in 2004, one opened in 1998, and 4 opened in the 1980's. In 2019, I will lose the last of my closed accounts, a student loan originating in 1996. So that mortgage I was contemplating should best be completed no later than December 2017, to avoid the score drop festival which will start in January 2018. This is very valuable information and thanks for mentioning it. Now I am going to do an analysis of my projected AAofA and date of oldest account that will be in effect after the first two accounts drop off in 2017. This will give me a better sense of how much time I have to acquire the new credit lines. Thanks again for mentioning it!

[yapsalot]

Hi Jamie 123,

Yes, I now know it is important for me to get several more open credit cards. Just since February 2016 when I joined Myfico.com and starting reading the forum posts, I have experimented with the effect my sole credit card balance has on my FICO score and it has been very illuminating. I have paid my Bank of America card (my only card since 2007) in full every month, ususally the day after the statement cuts. Yet I learned that I have to pay the balance in full before the statment cuts. Otherwise, the account will report with a balance, and lower the FICO score. So for the March 11, 2016 closing date, I paid the balance in full before the statement cut and didn't do so well on my FICO score. As I now know a zero balance is not ideal in maximizing the FICO score. For the April 2016 closing date, I paid all but $24 before the statement cut and got a pleasant bump in my FICO score. So I got a real life experience with credit utilization.

I just did an analysis of all my closed accounts and found out that I have a Bloomingdales card that is reporting as open on EX only. The account doesn't appear at all on EQ or TU. The account was closed by Bloomingdales a several years ago for lack of activity. I called Bloomingdales to see if I could re-open it and they said I could but only with a hard pull and the new card would not get the benefit of the original open date of 1983. So I saved myself a FICO drop because I was about to dispute the account with EX to get it removed. Armed with the knowledge I have recently acquired, I won't be doing anything about it other than letting it sit there and give me a score boost until 2021 when it will be 10 years from the last report date at which time I assume it will drop off my EX. 

The other thing I found out while doing the analysis of my closed accounts is that none are dropping off in 2016 and only two drop off in 2017 but in 2018 I have 7 accounts, most of which were opened in the 1980's and one which was opened in 1979, that will all drop off my report. So my next step will be to calculate my projected AAofA and date of oldest account that will be in effect after the two accounts drop off in 2017. Then I will know how quickly I have to move to get the new credit lines in place before my score drops due to the drop in AAofA.

Thanks for pointing out the details of credit utilization, its really valuable information for me!

[Anonymous]

Hey Y!  Sorry for creating any unnecessary pressure on you.  You are totally doing the right thing.  I got worried when you said earlier that your cards were all closed 10 years ago.  If so that would mean they were all going to drop off in the next month.

It sounds like you have gone back and looked more carefully.  Sounds like most of them were closed off 8 or 9 years ago, so you have some breathing space.  It's worth observing, however, that closed tradelines can drop off much sooner than 10 years, and there is no dispute process or any other recourse to fix it.  So you can't assume with 100% certainty that each closed tradeline will drop off at precisely 10 years -- for any particular TL it could be year 8.5, 7.2, or earlier still.  Nonetheless I think the kind of analysis you did where you project a dropoff at exactly year 9.99 is very useful and if I were a betting man I would lay money that each TL will indeed drop off right on schedule.

It's easy to get caught up with account age as if it were the be all and end all of scoring, especially when you can project a massive drop in AOA and AAoA.  But the truth is that your scores can actually be quite high with comparatively low age values.  Even after all of your old accounts fall off, your AOA (Age of Oldest Account) will be fairly high: it will be based on your BOA card and will be roughly 10, which is fine.  Your AAoA is a bit more complicated since it will be affected by the accounts you are adding in March-July 2016.  If I were you I would do something like this.  Assume that you add two more cards and a SSL in the next four months.  That will give you a total of four cards and an installment loan, all open.  Then project what your AAoA would be in a year if you had only your open accounts.  You will probably find that your AAoA will be a bit over 3.  Believe it or not that's still pretty respectable.

If you are certain that you want to buy a house within the next 18 months for OTHER reasons, that's fine.  I just wouldn't let your house buying timeline to be driven too much by the impending drop in AAoA.  If you add a few accounts now, a home purchase in 2018 would be no problem, even if all your old accounts were gone by the time you started house hunting.

[yapsalot]

Hi CreditGuyInDixie,

The AAofA is not a pressure, its an opportunity and a fun pastime. I might be able to take some advantage of the existing high AAofA within a window of time, before it drops. I've got so many accounts that will drop off over the next few years that I want to get it into a spreadsheet to easily see the effects over time of both old credit lines dropping and new ones being added. That is proving to be tougher than I thought. I found a couple of spreadsheets that will calculate AAofA, one on this forum and one site based model. The one on this forum is good for calculating the current AAofA but doesn't have the ability to see effects over time. The site based one has the same problem. I was able to make a rudimentary spreadsheet today that will calculate the current AAofA but can't accommodate the addition of new credit lines over time or the drop off of others. My limited knowledge of spreadsheets makes unlikely I can personally make such a spreadsheet. And even thought it is a relatively minor component of the FICO score and the precise drop off dates are not entirely predictable, it would be interesting and fun to get a better handle on it. I have a friend who is an IT professional who could probably get a really good one going in less than an hour. He's done other spreadsheets for me in the past that I use at work that are very helpful and easy to use. So if I can get him to do one, it will be a good one, and I can share it with the forum. By the way, my TU jumped up to 799 today, from about 780 or 790 (as I recall) a few weeks ago, apparently due to credit utilization. I understand there are report changes that don't trigger alerts, so something might have happened that I don't know about, but the alert indicator said my card balance increased by about $600, and the immediately prior balance was $0. So I guess the increase in card balance bumped the score. Thanks for your help!