Adding an installment loan -- the Share Secure technique

[noobody]

45x0.04/12x60=9
And $10 donation
So the answer is UP to $19 in 5 years and at least 30 Points gain if you do not have installment loan, open or closed on your file

[manyquestions]

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@Adidas wrote:

I'm seriously considering trying this technique but I have 2 questions.

First how well does this technique work for someone with no installment loans but who already has a relatively high credit score in the mid 700's or above? Is there less of a benefit if you aren't rebuilding and already have a highish score?Clean reports with high scores is the scenario it tends to give the biggest gains to. It's very important to read and understand the first few posts of this thread before you begin.

Second how much money do you end up losing with this technique? Depending on whether you are already part of a CU you might have to make a donation to a non-profit to join the CU. After that though how much money is lost in interest? I'm guessing by paying down 99% right away you could reduce this amount but I'm looking for a specific example from someone who has done the technique. My goal here is to be able to say "It will cost $5.50 in interest to get 37 points" and then I can decide whether that's a good deal for me. This thread is full of examples. For me, it costs about a dollar per year in interest.

Thanks for any info!   Use Alliant and follow the specific instructions in the first few posts of this thread if you want the experience to be easy. 

[Anonymous]

My comments in blue below.  Welcome to the Forum!

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@Adidas wrote:

I'm seriously considering trying this technique but I have 2 questions.

First how well does this technique work for someone with no installment loans but who already has a relatively high credit score in the mid 700's or above? Is there less of a benefit if you aren't rebuilding and already have a highish score?

The evidence thus far is that the only people who experience limitation in the amount of the expected 30-point boost are people for whom the boost would place above 845.  A person with a 750 is perfect for this technique. 

That said, people with extremely young profiles (age of oldest account < 2 years say) or people with extremely thin profiles (total number of accounts, closed and open, is < 6) may also be capped by FICO, meaning there is a theoretical maximum of how high their scores can go.  But even if that applies to you, the cap is still likely to be more than 30 points from where you are now. 

People who have derogs also are capped.  Can you confirm that you have no derogs?  (Lates, collections, chargeoffs, judgments, etc.)

Second how much money do you end up losing with this technique? Depending on whether you are already part of a CU you might have to make a donation to a non-profit to join the CU. After that though how much money is lost in interest? I'm guessing by paying down 99% right away you could reduce this amount but I'm looking for a specific example from someone who has done the technique. My goal here is to be able to say "It will cost $5.50 in interest to get 37 points" and then I can decide whether that's a good deal for me.

I did some calculations really quickly just now.  Could you review them and let me know if they look right?  They assume a 4% interest rate.

$0.40      Interest on the full $500 for the first 7 days

$0.35      Interest on $70 for the following 45 days

$8.80      Interest on $44 for the following 5 years

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$9.55      TOTAL

Note that the $8.80 figure is inflated a bit.  It's not a full five years and the $44 balance decreases a slight bit over those 58 months.  So my guess is that one pays about $9 in interest for the total life of the loan.  It will of course be even less if your interest rate is < 4%.

Thanks for any info!

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[Adidas]

Thanks for the info! Sorry I missed in the first couple posts that this technique works best for those with already high scores. Yes I have no derogs so it sounds like this would work well for me. Something that costs less than $10 total + donation to join a CU sounds like a pretty good deal. 

My only concern from here is whether I care about my score enough to do it. If this would drastically help my score when applying for a mortgage a few years from now and thus save me lots of money in future interest then it would be worth it but the original post points out this won't do much for the mortgage fico scores. Also if I can get into the highest FICO range already by paying my CC's on time and that gets me into the best mortgage rates category then there really won't be much of a reason to do this. So I guess the only reason to do it would be if I get denied for some CC's I want and would like to boost my score for that.

[Anonymous]

Comments in blue below.  :-)

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@Adidas wrote:

Thanks for the info! Sorry I missed in the first couple posts that this technique works best for those with already high scores. Yes I have no derogs so it sounds like this would work well for me. Something that costs less than $10 total + donation to join a CU sounds like a pretty good deal. 

My only concern from here is whether I care about my score enough to do it. If this would drastically help my score when applying for a mortgage a few years from now and thus save me lots of money in future interest then it would be worth it but the original post points out this won't do much for the mortgage fico scores.

It won't do anything for the TU and EQ mortgage scores.  But it will help your EX mortgage score.

Also bear in mind that, in 2-3 years from now, the "mortgage scores" that are used know may no longer be used.  They are currently based on extremely old scoring models, from 2004 and before.  Eventually Fannie Mae will approve the use of much more current models (e.g. the FICO 8 Mortgage model might be an option).  There have been bills in Congress pushing for this.  The successor to the currently used but ancient models will likely benefit from the Technique.

Also if I can get into the highest FICO range already by paying my CC's on time....

You cannot reach the highest range only by doing that.  You need an open installment loan paid down to reach the highest ranges.  Doesn't mean that you need to, just giving you some factual info to make your decisions.

Also, as far as the future goes,future scoring models and credit evaluation will benefit not only from paying your cards on time but paying them in full.  I encourage you to get in the habit of doing that.  In the past, there was no benefit to paying in full (except avaoiding interest).  In the future, creditors will be able to see whether you have a history of paying in full, which is statistically strongly associated with low risk.

.... and that gets me into the best mortgage rates category then there really won't be much of a reason to do this.

So I guess the only reason to do it would be if I get denied for some CC's I want and would like to boost my score for that.

I am sure you will do what is right for you.  Do you mind me asking what your total number of accounts is right now?

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[Adidas]

No I don't mind at all thank you for being so helpful! Hopefully this doesn't take us too far off the OP topic but my info is:

Current Cards (limit, age):

Discover It (5.6k, 2y,1m)

AmEx BCP (9k, 1y3m)

Citi DC (3k, 5m)

Stats:

3 accounts total

AAoA 1y3m (Oldest 2y1m / Newest 5m)

UTIL ~ 3%

No baddies

1 HP on each TU and EQ in last year

According to my Disc/AmEx/Citi card sites my TU/EQ/EX FICO scores are 758/735/749

No student loans/car loans/mortgage and don’t plan on getting one for several years. (this is why I'm considering the installment)

I always pay in full. The only reason I use CC's at all is for the rewards (you can see I'm a fan of cashback) and to build a history to get a good mortgage in the future. I have my card sites setup to pay in full automatically every month and basically treat them like debit cards (ie I check my bank account to see if I can afford something rather than checking my credit limit). I'm already a member of a local CU so I would probably just use them for my installment loan if I decide to get one. And CK says I'm already around 760 which puts me into the highest mortgage category already if I'm not mistaken. Now I know CK isn't the same as a FICO 08 so my actual score is likely lower but I figure in a few years my real FICO 08 score will be above 760 all on its own just from PIF on my CCs which would make the installment loan technique seem unnecessary.

Thanks for your help!

[newhis]

@Adidas, for me less than $20 for 5 years score boost is great.

I don't know how much it will  help my profile. I didn't know about Alliant 2 years ago when I got a 12 months secured loan at a local CU. I paid it as agreed and I got my score jump when it was lower than 10% (1 month before last payment). My TU score reached 820 then. Then the loan was paid and Iost many points (below 800). In the last year my TU score goes up-down 785-805, if more cards report balance the score go down.

I'm getting the secured loan with Alliant just to see if my score stay over 800 with my normal use. I think it is worth it for the price.

I think your scores will go up 20-30 points in the next 2 years if you don't get more accounts (no "new account", AAoA over 2 years, no HP, more payments). This loan will help you get over 800 sooner.

[Anonymous]

You have what is called a thin profile.  (Low number of accounts.)  FICO and VantageScore may be scoring you right now in a limited scorecard designed for profiles that are clean but thin.  You will do better in the long term (and for your mortgage) if you can get out of the "thin" categorization.  The only way to do that is by adding accounts and handling them responsibly.

Using the SSL Technique will benefit you by:

     Improving your Credit Mix category (you have no installment loans of any kind, open or closed)

     Improving your Amounts Owed category (by creating a total installment utilization of 1-9%)

     Moving you toward a thicker profile (and away from the Thin categorization)

     Creating a five year history of an installment loan in perfect standing -- which will be visible to an underwriter when he evaluates your mortgage application (this doesn't affect your score but will be seen when he does a manual review)

It sounds like you are definitely not going to get any installment loan for the next several years.  Frankly I just cannot see the downside to doing the SSL approach.  It will boost your score 30 points higher and it will add another account.  You can then add one more card if you like (with certainty of approval, because of the score boost) which will be yet another account.  Note with this approach your score will be substantially higher, even after adding extra accounts and thereby lowering your AAoA, then it would be with the approach you suggested, which is to add no more accounts and let your accounts age.

If in five years you still have no auto or mortgage loan, you can just add another SS loan again.

If you do decide you wish to go with the SSL approach, I'd use Alliant rather than your CU.  You ideally want a CU that does all of the following:

     * Offers an SS loan

     * Does no hard pull in connection with applying for the loan

     * Permits the loan amount to be as low as $500

     * Allows the term to be five years

     * Allows you to pay down almost all of the principal right away

     * Allows you to keep the loan open for a full five years even after the immediate paydown

Alliant does all of that.  Plus you have a play by play description of exactly what to do in the guidance. 

You write:

I have my card sites setup to pay in full automatically every month and basically treat them like debit cards (ie I check my bank account to see if I can afford something rather than checking my credit limit).

That is great news.  Many people do not do that and it is EXACTLY the right mindset to have.

[Anonymous]

Wanted to chime in here about my experience using this technique.

I had never had a loan before, but I've had a couple dozen credit cards in the last 10 years. Otherwise I have a spotless credit history. I think I was a prime candidate for this technique.

My Experian FICO 8 has moved from 771 to 800 thanks to this technique. In the 3-4 years I've been looking at this score it has never previously gone over 777 or so. Other scores (such as those on Credit Karma) have moved higher by as much as 40 points.

The whole process did take almost 3 months from starting to get this score boost to actually show up, but I wasn't in a rush.

Huge thanks to CreditGuyInDixie for all his hard work on this. I (and so many others) really appreciate it!!

[Anonymous]

That is the sweetest and funniest screenname I have seen on here.  Thanks pal.