Adding an installment loan -- the Share Secure technique

[SouthJamaica]

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@Anonymous wrote:

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@SouthJamaica wrote:

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@Anonymous wrote:

I read this entire thread beginning to end and decided I like this plan. It's inexpensive and easy to maintain. I already have a 1 year credit builder loan with my local Credit Union but it's near 100% utilization because it's new. I called my Credit Union's corporate number to inquire about the terms of my loan. The lady was very condescending. She told me that I cannot deviate from the agreed upon terms. No modifications, no alterations, no adjustments PERIOD! She also reminded me that they have a signed contract. Because of that, I got an account with Alliant. I haven't set up the loan yet. Still waiting on the account verification to fund it.

I read over my Credit Union's contract. The auto pay terms are listed in there but where it says "I agree to pay" only the total loan amount plus interest and a final due date is listed there. Just for giggles, I went onto my Credit Union's online banking site and threw $250 at my $500 installment loan. It took the $250 as a payment for this month and my next due date is next month. Lame. This plan obviously doesn't work with everybody. 

So, I'd like to get the Alliant SS loan but what should I do with the Credit Union loan? Pay it off? Let it age? Does it matter?

My suggestion would be:

1. Pay $205, so you'll be down in the $45 balance range.

2. Then wait and see how it reports.

3. If it reports that it's got a $45 balance, then you're good. Just let it be, paying the minimum amount due each month.

It's better for this account to be open than paid off, until you've got your Alliant SSL in place and reporting 9%.

I'd like to get a mortgage in 6-7 months and that's right about the time the Credit Union loan would be paid off via auto pay. Would I see any benefit at all from the Alliant loan if I go straight from my Credit Union loan to a mortgage? My fear is that once the Credit Union loan is paid off and I don't have any other installment loan for the "mix" points, my score will drop just in time for a credit pull for a mortgage. What do you guys think?

I think you should still get the Alliant loan, since it's more dependable. Also it will help your score after the mortgage.

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Unfortunately, if I pay my existing loan down that far, it would only last 2 months. The payment on it is locked at $42. I'll get the Alliant loan and let the CU loan ride for a little while. 6 months of on-time payments can only do me good. I've been thinking about getting rid of this CU anyway. Once I get that mortgage, they won't be the local CU anymore since I'm going out of state.

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Just bear in mind that your score won't be optimized until that loan gets down to 9%.

[newhis]

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@SouthJamaica wrote:

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@Anonymous wrote:

I'd like to get a mortgage in 6-7 months and that's right about the time the Credit Union loan would be paid off via auto pay. Would I see any benefit at all from the Alliant loan if I go straight from my Credit Union loan to a mortgage? My fear is that once the Credit Union loan is paid off and I don't have any other installment loan for the "mix" points, my score will drop just in time for a credit pull for a mortgage. What do you guys think?

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I think you should still get the Alliant loan, since it's more dependable. Also it will help your score after the mortgage.

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The Alliant loan will help the score after the mortgage?

My understanding is that the SSL will only help if you don't have any open loans.

I think I don't understand the technique 100%. In my case will be the only open loan, so I think it will help a lot.

[Anonymous]

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@newhis wrote:

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@SouthJamaica wrote:

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@Anonymous wrote:

I'd like to get a mortgage in 6-7 months and that's right about the time the Credit Union loan would be paid off via auto pay. Would I see any benefit at all from the Alliant loan if I go straight from my Credit Union loan to a mortgage? My fear is that once the Credit Union loan is paid off and I don't have any other installment loan for the "mix" points, my score will drop just in time for a credit pull for a mortgage. What do you guys think?

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I think you should still get the Alliant loan, since it's more dependable. Also it will help your score after the mortgage.

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The Alliant loan will help the score after the mortgage?

My understanding is that the SSL will only help if you don't have any open loans.

I think I don't understand the technique 100%. In my case will be the only open loan, so I think it will help a lot.

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No harm in having it if the utilization is in-check. I'm getting the "mix" points now so I'm not going to see the big jump from the Alliant loan or the mortgage. Fine tuning at this point. 

[SouthJamaica]

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@newhis wrote:

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@SouthJamaica wrote:

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@Anonymous wrote:

I'd like to get a mortgage in 6-7 months and that's right about the time the Credit Union loan would be paid off via auto pay. Would I see any benefit at all from the Alliant loan if I go straight from my Credit Union loan to a mortgage? My fear is that once the Credit Union loan is paid off and I don't have any other installment loan for the "mix" points, my score will drop just in time for a credit pull for a mortgage. What do you guys think?

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I think you should still get the Alliant loan, since it's more dependable. Also it will help your score after the mortgage.

---

The Alliant loan will help the score after the mortgage?

My understanding is that the SSL will only help if you don't have any open loans.

I think I don't understand the technique 100%. In my case will be the only open loan, so I think it will help a lot.

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Mortgages are in a different category than non-mortgage installment loans.

[Anonymous]

Hi Driver.  A number of things have been raised in the last several posts.  I should be able to chime in tomorrow.  Could you hold off making any decisions until you've had a chance to hear my thoughts?

[Anonymous]

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@Anonymous wrote:

Hi Driver.  A number of things have been raised in the last several posts.  I should be able to chime in tomorrow.  Could you hold off making any decisions until you've had a chance to hear my thoughts?

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Absolutely

[Anonymous]

OK, Driver!  I got back a little sooner than I thought I might.  So I will give you my thoughts now.

The first key thing I saw from your original post were these words:"I'd like to get a mortgage in 6-7 months...."

That's the money quote.  That's what matters.  And all of our responses need to be centered around that. 

It turns out that the mortgage industry uses a very different set of scoring models from the ones that are used by most auto lenders or CC issuers.  Those "mortgage scores" do not benefit from the SS Loan Technique in the same simple across the board fashion that your other scores will.  That's because the mortgage model currently used by TransUnion and Equifax doesn't give you any points for having open loans and paying them down.  They do care whether you have at least one installment loan, but it could be closed -- and if it is open it doesn't matter whether your installment utilization is 95% or 5%. 

The Experian mortgage score, however, does behave much more like FICO 8 in valuing open loans that are mostly paid off.

So what you need to be doing is getting your CC debt reporting in ideal shape (one CC reporting with a small positive balance and all other cards reporting $0); and then pull all your FICO scores at myFICO.  This pull will give you your mortgage scores as they will likely be when you need them in 7 months...

... but with one caverat.  If you were to have an open loan and a total installment utilization of < 8.99%, you will gain maybe 10 points on your EX score.  (Right now you have an open loan with total installment util of 50%.)  If you have no open loans in 7 months (only closed ones) you will lose 20 points on the EX score.  Both of those are estimates: I cannot say with confidence what the bonus or penalty will be.  But the estimates are not too far off.

So you need to pull your mortgage scores (after optimizing your CC balances) and then come up with your final three scores in both scenarios.  (Scenario #1 is exactly one loan with a total installment U < 8.99%.  Scenario #2 is no open loans.)

Now compute your "middle" mortgage score for both scenarios, which is what your lenders will look at.  If the middle score is significantly higher in scenario #1, then you know you need to implement the Alliant technique.  If the middle score in scenario #2 is just as high as scenario #1, then you do not need to implement the Alliant technique.  As a matter of fact, ONLY if the middle score is signifiantly higher in #1 should you implement the Alliant technique, since that technique will involve lowering your AAoA and reducing the age of your youngest account to 1-5 months.

Let me know if that makes sense.

[Anonymous]

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@Anonymous wrote:

OK, Driver!  I got back a little sooner than I thought I might.  So I will give you my thoughts now.

The first key thing I saw from your original post were these words:"I'd like to get a mortgage in 6-7 months...."

That's the money quote.  That's what matters.  And all of our responses need to be centered around that. 

It turns out that the mortgage industry uses a very different set of scoring models from the ones that are used by most auto lenders or CC issuers.  Those "mortgage scores" do not benefit from the SS Loan Technique in the same simple across the board fashion that your other scores will.  That's because the mortgage model currently used by TransUnion and Equifax doesn't give you any points for having open loans and paying them down.  They do care whether you have at least one installment loan, but it could be closed -- and if it is open it doesn't matter whether your installment utilization is 95% or 5%. 

The Experian mortgage score, however, does behave much more like FICO 8 in valuing open loans that are mostly paid off.

So what you need to be doing is getting your CC debt reporting in ideal shape (one CC reporting with a small positive balance and all other cards reporting $0); and then pull all your FICO scores at myFICO.  This pull will give you your mortgage scores as they will likely be when you need them in 7 months...

... but with one caverat.  If you were to have an open loan and a total installment utilization of < 8.99%, you will gain maybe 10 points on your EX score.  (Right now you have an open loan with total installment util of 50%.)  If you have no open loans in 7 months (only closed ones) you will lose 20 points on the EX score.  Both of those are estimates: I cannot say with confidence what the bonus or penalty will be.  But the estimates are not too far off.

So you need to pull your mortgage scores (after optimizing your CC balances) and then come up with your final three scores in both scenarios.  (Scenario #1 is exactly one loan with a total installment U < 8.99%.  Scenario #2 is no open loans.)

Now compute your "middle" mortgage score for both scenarios, which is what your lenders will look at.  If the middle score is significantly higher in scenario #1, then you know you need to implement the Alliant technique.  If the middle score in scenario #2 is just as high as scenario #1, then you do not need to implement the Alliant technique.  As a matter of fact, ONLY if the middle score is signifiantly higher in #1 should you implement the Alliant technique, since that technique will involve lowering your AAoA and reducing the age of your youngest account to 1-5 months.

Let me know if that makes sense.

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Gotcha. My CC debt reporting is in GREAT SHAPE! <1% with only one card reporting. It's recurring and set up on auto-pay to PIF on the due date.

I have the Ultimate 3B package so I can pull these every 3 months. Experian is my low mortgage score at 675 (FICO 2), Transunion is 689 (FICO 4) and Equifax is 681 (FICO 5). These were pulled on 11/26 and one of the negs for Experian does state "The remaining balance on your mortgage or non-mortgage installment loans is too high." My Credit Builder loan was at 100% utilization on 11/26 when the mortgage scores were pulled. If I lose 20 points out of Experian, my middle score would be as it is now at 681. If I gain 10 points out of Experian, it would shift my middle score to the new Experian score of 685. My AoAA is 7yrs, 10mos. so I don't think a new account would beat me up too bad.

[Anonymous]

All in all it probably makes sense to do the SS loan with Alliant (as long as you do the full technique and have a total installment util < 8.99%).  Using your 11/26 pull of your mortgage scores, you'd be going from an installment util of 100% to one of 8.9%.  Thus would give you a solid 20 points for Experian.

That would cause your middle score to rise from 681 to 689.

But... there remain those other two factors.  I can't be certain that they wouldn't offset that 8 point rise.  Most likely not, but I can't know. 

Anyway, the key point I wanted to make is that you shouldn't expect a 30 point rise across all three bureaus by using the technique.  If you get a mortgage scoring advantage it will be something much slimmer, via the argument you and I have been discussing.

[Anonymous]

I'll do it just because I'm dying of curiosity  I appreciate the assist! I'll report in when I get a change in score so you can see how close your estimate was.