Adding an installment loan -- the Share Secure technique

[Anonymous]

Hi Verovero!

I didn't understand most of your post.  Really sorry.  Maybe you can try phrasing it again?

[noobody]

I think I am the perfect candidate for this loan.

Around 800 CS with paid car loan dropped off my report 3 years ago.

All my 14 trade lines are credit cards.

AAoA 7 years, oldest account 21 years.

No negative info on report

Expect 20 points increase?

Opened saving account and transfer money on Friday, guess it will be available on Monday, then I can apply for the loan, I will report back with result.

Thanks OP for well written instructions and theory behind it.

One more question, does this loan count as new account as far as Chase 5/24 rule concerned?

I am at 4/24 after my CSR approval

Not that I will apply new Chase card any time soon, I am at Max exposure with them.

[Anonymous]

Hello Noobody.  You are a perfect candidate.  No installment accounts, closed or open.  A fairly thick profile with at least one old account and no derogs.

I will be immensely interested in hearing what benefit you get.  I would expect far more than 20 points in your case.  30-39 is more reasonable.  (As long as the increase would not bring you to 849, in which case it might be less.)

As far as the Chase 5/24 rule, that applies only to opening five credit cards in the last 24 months.  This is not a CC so the SS loan will have no effect on your 5/24 status.

Good luck!

[Anonymous]

Sure, sorry about not being clear enough. I followed your suggestion about the share secure technique, since I didn't have current installment loans, only credit cards. I want to boost my score, particularly the mortgage ones since I want to buy a house in Sept.

So I opened up an installment loan in Alliant, as you suggested. My credit was good enough to not have it be secured. It was for $1,000. I opened a savings account with them and had the money put there, and created an automatic monthly minimum payment for the installment loan. That way there is no chance of my forgetting to pay it.

My minimum payment is around $36, so I can't pay it down to below 10% now, or in 3 months I will have paid it off. I plan to pay it down to 3 months minimum payments before the credit report is pulled for underwriting. That way I still show the installment loan, and be under 10 % owing.

I think you or someone else wrote that this approach has limitations on some of the mortgage scores, so I will see, thought I should try.

I am trying to time this so that when the report is pulled, I have the highest score that I can. I am going for a large jumbo mortgage, so better credit can be a big swing in monthly payments. I have 3 credit cards that I max out but pay at the end of the month, in fact twice a month. They are used for business so the amounts run into the many thousands each month. Despite that, the 3B report I ran yesterday showed I got dinged for having too much revolving credit amount owing.

So I plan to stop all credit card business use, forego the miles and chase points during that time, pay the merchants by check instead of ccs to make sure the reports show zero balance on 2 of them, and maybe 10 dollars on the third one. 

My FICO mortgage mid score is 714, and has not changed or actually dropped a few points since 6 months ago.The installment did not help, but then again, I show owing 90% of the original loan. Also, Alliant did show as an enquiry on the 3B, so that could have brought it down some, along with a Chase card enquiry when I unsuccesfully tried to get a credit line increase (was told it was too early).

I wonder how much this approach will help me to boost my mortgage scores in Sept, if any. I haven't seen my scores get any better for a year. mortgage or FICO 8 (I assume FICO 9 is not used much for general credit)

I hope that I was clear enough this time, Credit Guy, if not, let me know. I would appreciate any feedback you have regarding my efforts above to increase my mortage scores. I had a Chpt 7 discharge Sept 2013, which is why I need to wait 4 years for the jumbo loan.

[Anonymous]

Thanks so much for taking another crack at your post.  I think I got it this time!

It sounds like the sole reason you might be pursuing this SS loan is to improve your mortgage scores.  That makes things very simple, since you have exactly one goal that drives everything.

Did you have any closed installment loans on your profile (in good standing)?  If you had no installment accounts, closed or open, then it is quite possible that adding an installment loan would give you some "credit mix" benefit for your TU and EQ mortgage scores.  But the mortgage model for TU and EQ (FICO 04) apparently does not give a person any benefit from paying installment utilization way down. 

The mortgage model for EX (FICO 98) does give you benefit from adding an installment account in much the same way that FICO 8 does -- both via Credit Mix and also the installment utilization benefit (which comes from the Amounts Owed category).

So when a person is in your shoes (you had no open installment loan and were thinking solely about your mortgage scores) the right steps would have been to do the following:

(1)  Get your profile as squeaky clean and optimized as you can, in terms of removing any derogs if possible and getting your CC balances to report as all $0 except one card, which would report a small amount (e.g. $10). The one card showing the $10 would need to be a true credit card (not a charge card) and also not an AU card.  During this step you would NOT have yet added an installment loan.

NOTE: if you have no installment loans of any kind, closed or open, you should go ahead and use the SS Loan Technique as part of step #1, including paying it way down.  There's no hard pull and it is possible that adding the loan will help EQ and TU (a small amount) so it makes sense to do it at this point.  It will definitely help EX.

(2)  You'd pull your reports one more time to make sure all the changes in #1 were reflected in the latest reports.  This report pull could be done at no cost to you.

(3)  Now you would pull your three mortgage scores via myFICO (which involves no hard pull).  Rank the three scores so you can see which is your highest, middle, and lowest. 

If, prior to step 1, you had no loans of any kind, including closed ones, you're done.  You have an open SS loan that is almost all paid off, and you now know what your mortgage scores are with your reports as optimized as you can (except for accounts getting older and further inquiries/derogs falling off).

So let's assume that you have not yet added the installment loan.

If your EX score is already your highest, then there'd be no point to adding an installment loan.  Do you see why?  It's because the "add an instament loan technique benefits EX but not EQ or TU.  You are trying to increase your middle score, and increasing the top score while leaving the lower two scores alone won't help.

Let's assume then that EX is not your highest score.  Now mentally add 20 points to it (that's a decent guess as to your benefit from using the SS loan technique)..  Does that make your TU or EQ your new middle score?  If it does, then look at how much your middle score has gone up.  If it has gone up enough to matter, then implement the SS Loan Technique.  Otherwise do not do it.

The steps as described above would have been the right series of steps for you to take. 

Unfortunately you did not do this (or get advice).  So you have chosen to get an unsecured loan rather than a secured loan.  That has a number of scoring disadvantages.  It involved a hard pull, which the SS loan would not have involved.  The hard pull might have hurt one of your three scores.  You are unable to pay it down right away, so it is hard to see what benefit you might get on your EX score.  Finally, it's possible that getting the loan was pointless because your optimized mortgage scores might have already involved EX as your best score -- and you can't know that until you optimize first, then pull the scores, then decide whether to add the loan.

Given the somewhat complicated situation you have landed yourself in, I would say that you have identified the best track to take, which is to swiftly pay off all cards except 1, which will have a small positive balance.  Then a month before underwriting begins, pay down the loan to < 8.99%.  And hope for the best.

[Anonymous]

No need to stop using the cards, and actually if you let them all report $0 your score will be lower. Don't put any new charges on the card a few days before the statement cuts. Pay down all cards but one to $0 before the statement and pay down the remaining account to have a very small balance, around $2-5 (depends on the bank some will round down or write off a $1-2 balance)

[Anonymous]

Very well explained, thanks!  My situation is that I had no open installments, but did have closed ones (and multiple mortagages, all closed) prior to and after the 2103 Chpt 7.

My mortage FICOs are: experian 713,  equifax 714, TU 738. 

Since I did not have an open installment I thought adding to the credit mix would help, as well as low utilization come submission time. You are right, I didn't realize that secured versus unsecured meant an enquiry would show up. I thought a unsecured loan might look better, never gave it a thought, to my regret.

If I had installments that were closed (and I do, many of them), does it help to have an open installment for credit mix, or do old installments that are closed count toward the mix just as much, and therefore no need to open a new one?

The experian would go up nicely according to this paradigm, perhaps close to the TU score, but that leaves me theoretically only one point better, since the Equifax is at 714. Perhaps as you say I may get a little bump from credit mix/low utilization on the mortgage score.

Come mortgage time, I will pay down to $0 the cards except one very small balance, run the reports on my own as you say, and then hope for the best.

I can also close the open installment loan and get a secured one, but unless I am missing something it does not seem to matter. I opened the Alliant in April of 2016, and I am buying a house 1 1/2 years after, so I hope the ding on the score, if any, is gone.

Thanks for your feedback, I appreciate it.

[Anonymous]

yes, I will wait a couple of months before the purchase, and run a myfico first to make sure they show as discussed. Thanks.

[Anonymous]

My comments are in blue below.  Best of luck, pal! 

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@Anonymous wrote:

Very well explained, thanks!  My situation is that I had no open installments, but did have closed ones (and multiple mortagages, all closed) prior to and after the 2103 Chpt 7.

My mortage FICOs are: experian 713,  equifax 714, TU 738. 

Since I did not have an open installment I thought adding to the credit mix would help, as well as low utilization come submission time. You are right, I didn't realize that secured versus unsecured meant an enquiry would show up. I thought a unsecured loan might look better, never gave it a thought, to my regret.

If I had installments that were closed (and I do, many of them), does it help to have an open installment for credit mix, or do old installments that are closed count toward the mix just as much, and therefore no need to open a new one?

The experian would go up nicely according to this paradigm, perhaps close to the TU score, but that leaves me theoretically only one point better, since the Equifax is at 714. Perhaps as you say I may get a little bump from credit mix/low utilization on the mortgage score.

Because you already had a number of closed installment loans, adding a new installment loan did not give you any help to your mortgage EQ and TU.   Remember, those two scores use the FICO 04 model, and this model gives you no extra points for having an open loan or an open loan that is mostly paid off.

But EX mortgage uses the FICO 98 model, which does reward you for having open installment debt that is mostly paid off.  Thus, when you pay your installment loan down shortly before underwriting begins, you will get a significant bonus.

It's unclear to me how much of an EX bonus you will get, since you may have gotten a piece of it already.  Let's be conservative and say 15 points.

Your current scores are (from lowest to highest)

      EX 713      EQ 714      TU 738.

Your middle score is currently 714.

If you get a 15 point boost to EX,, this will change your scores to:

      EQ 714      EX 728    TU 738 

Do you see how the EX boost would cause your middle score to become 728?

Come mortgage time, I will pay down to $0 the cards except one very small balance, run the reports on my own as you say, and then hope for the best.

You will also likely get a boost from all inquiries aging to over 1 year and your AAoA going up.

One thing you should be doing during the next 12 months is using all your cards naturally, allowing the charges to create monthly statements with a positive balance, and then paying in full the amount owed on the statement.  You will be establishing a history of being a "transactor" on each card which has recently become a part of what mortgage lenders look for.  (This is as opposed to a person who does not pay in full, but allows charges to build up and pay interest on them -- that's called being a "revolver" and is seen (correctly) as a sign of a riskier borrower.

A few months before the underwriting, however, you can switch your style to keeping all cards at zero except one.  Be sure that your one positive balance is at least $5.  Somebody recently reported having a $3 balance treated as $0, so make your positive balance $5 or more to be safe.

I can also close the open installment loan and get a secured one, but unless I am missing something it does not seem to matter. I opened the Alliant in April of 2016, and I am buying a house 1 1/2 years after, so I hope the ding on the score, if any, is gon

Thanks for your feedback, I appreciate it.

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[Anonymous]

CGID -

Why would you want to let your cards report balances to show you are a "transactor" vs the All 0 except 1?
How would a future creditor know you paid in full each month?