Asking for a friend SSL

[Subexistence]

I have a local CU with a $50 signup bonus that my friend can join. They offer SSL at a rate of 4.5% with minimum loan of $300 and max term 5 years. The SSL can either be secured through a CD, a shared savings account, or a money market account. 

• A 5 year CD for $300 is 2.3% interest rate which according to CD calculator will earn $36 
• A share secured savings account will have .10% interest and the money can immediately be withrawn when no longer frozen
• A money market account that will not pay interest for amounts as low as $300.

 Even though pre-payment is allowed with no fee, it would shorten the loan duration so my friend will most likely pay it back slowly. This will result in $35.57 being paid as interest.

One question is would CD make the most sense in this situation?

The other question is how much FICO score boost would he get for just getting credit mix but have above 90% installment utilization?

[arkane]

I'd say the CD makes the most sense if your friend is ok with $300 being as good as gone for 5 years. IIRC I think Thomas mentioned you get 10 points just for having an open installment account in the credit mix category. 

[Anonymous]

Next month I am testing the 88% installment loan utilization FICO increase.  I would suggest your friend just pay down the loan to 88% regardless and then pay it off slowly from there.  I do believe (gut instinct here) that there's a threshold on installment loans at 88% (aggregate of all loans).

My current installment loans are reporting:

• Alliant SSL: $40/$500 (8% remaining)
• Boat Loan: $20877/$22461 (92.9% remaining)
• Aggregate: 91.1% remaining (no FICO increase apparently since 100% balance aggregate)
• Next month: $20205 (88% remaining)

I really wish I did my Alliant SSL for the maximum amount (up to $50,000, lol). That was a dumb mistake, probably.

[Anonymous]

My advice would be for your friend to wait for another couple months while the volunteers on this forum find some reliable alternatives to Alliant.  I.e. a CU or bank that will enable him to open a 60-month SS loan, pay most of it off at month 1, and keep it open for the full 60 months while paying just pennies of interest.

The scoring advantage of the loan you describe will be small, i.e. one on which he owes most of the original amount.

[Anonymous]

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@Anonymous wrote:

Next month I am testing the 88% installment loan utilization FICO increase.  I would suggest your friend just pay down the loan to 88% regardless and then pay it off slowly from there.  I do believe (gut instinct here) that there's a threshold on installment loans at 88% (aggregate of all loans).

My current installment loans are reporting:

• Alliant SSL: $40/$500 (8% remaining)
• Boat Loan: $20877/$22461 (92.9% remaining)
• Aggregate: 91.1% remaining (no FICO increase apparently since 100% balance aggregate)
• Next month: $20205 (88% remaining)

I really wish I did my Alliant SSL for the maximum amount (up to $50,000, lol). That was a dumb mistake, probably.

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I remember reading about the sweet spot of the installment loan in other thread,  I think between 51-70% is the sweet spot.  I'm not sure if it has been confirmed.  Per your post, you think that once the loan is below 88%, I don't need to worry about getting the loan below 9% anymore since paying it down to that amount will shorten the life of my loan?  Thank you in advance.

[Anonymous]

51-70% is definitely not a sweet spot for installment utilization.  It that were true, then 45% would be worse than 51%, which is certainly not so.

Some people think that a person with a mortgage alone can get all of his installment U scoring points by (a) making a history of regular payments for several years and (b) getting it to below 70%.  That's conjectural but may be so.

What is known for sure is that if a loan is not at least a few years old and is non-mortgage, then the only certain way to get the IU scoring points is to get the total IU below 9%.

We hope to have a clear tested alternative to Alliant soon -- where a person can pay it to 8.99% and still keep it open for five years.  I am guessing we'll have some names by March.

[Subexistence]

What are the chances that no good alternatives are found?

[Anonymous]

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@Subexistence wrote:
What are the chances that no good alternatives are found?

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According to Revelate, almost zero. 

If you are asking me what are the chances that we will have found a few good alternatives and tested that they really work in the key ways that matter and have that all done by March 31 -- I think pretty decent but not more than 80%.

One possible option for your friend is to apply for a $500 unsecured loan through Alliant, and then execute the same steps as with the SS loan.  The only real downside is the hard pull.  The interest rate is a lot higher but since he is only paying interest on $40 or so I don't see that mattering much.  10% interest (say) on $40 is $4 per year.

Of course I am assuming here that Alliant will let you pay down the loan and keep it open for 60 months, just as they did with the SS loan, but I would be surprised if they permit it for one but not the other.