Getting a loan

[Anonymous]

Just curious. I was told FICO would love for me to get some type of installment loan to show mix credit and be rewarded for it. I need 5k and will let it go the full 3 years. This will give me a loan plus I have already 3 credit cards. Now I've been told I will take a nice hit for the inquiry and getting the loan will hit me again. So all in all I am guessing I will lose 40-60 points. So how am I being rewarded with mixxing my credit??

[newhis]

Yes, they like to see a mix on your credit.

If you don't have a loan, you could increase your score by up to 30 points if you get a loan and pay it down to less than 9%.

If you get a loan that will be 'normal' (fixed monthly payments), it may hurt your score because:

- new account

- may be a HP

- will reduce your AAoA

- will report 100% util the first month

The SSL technique helps because a) it is not a HP and b) it will report less than 9% the first month and will stay reporting low balance for 5 years.

[Anonymous]

If your only interest in the loan is to improve your score, then Newhis is absolutely right: the SSL technique is far superior.  You can read about it here (first two posts):

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...

The problem is, it sounds like you actually want 5k -- you really need the money for something.  In that case the new loan does involve a hit on a few different factors:

     Age of Newest Account

     Average Age of Accounts

     Hard Inquiry on probably one bureau

But it will give you an immediate benefit to your credit mix, if you have no loans of any kinds, open or closed.  And eventually, as the loan gets paid down, it should help a factor called Installment Utilization.

I think the chance that you will lose 40-60 points immediately is remote.  You might lose very few, e.g. only 5 points on all and 5 more on the bureau where they do the inquiry.  Hard to say.  But if the loan makes sense financially then you should do it.

[Anonymous]

Well thank you to both of you. And yes I need the loan

[newhis]

I don't know if it is worth the trouble and having 2 new accounts, but you could take the 5K loan, use that to get a SSL loan, pay it down to to $40 or less, and use the money.

One loan will report 100% but the other 1%, and together you will be at 50%. As you pay down your main loan you will get extra points. When you finish your 3 year loan you will still have 2 years left on your other loan.

I think is better to just get the loan you need, then down the road decide if you need a SSL with a higher line and not just $500.

[Anonymous]

I'm guessing your credit cards aren't positioned properly to pull $5000?

What is the loan for? The people on the boards might have some resources for you that could result in less pain.

[Anonymous]

My credit cards are discover 400 limit zero balance. First progress 750 limit zero balance capital one 200 limit. With 10 dollars shown balance. I need the money for my mother who is 81 and not well at all. I'm going to bring her to Hawaii. So I need to fly first and get things ready. I have 4k in savings but I don't want to touch that and use it up coz then I'll be stressing by paychecks. Which I definitely don't want to do. Because that will make me start using credit cards more and really mess up my credit score. I'm trying really hard to rebuild my credit

[Anonymous]

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@newhis wrote:

I don't know if it is worth the trouble and having 2 new accounts, but you could take the 5K loan, use that to get a SSL loan, pay it down to to $40 or less, and use the money.

One loan will report 100% but the other 1%, and together you will be at 50%. As you pay down your main loan you will get extra points. When you finish your 3 year loan you will still have 2 years left on your other loan.

I think is better to just get the loan you need, then down the road decide if you need a SSL with a higher line and not just $500.

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Hey Newhis!  I just love the way you jump in to help people out.  That's great.

As a quick aside, the installment utilization calculation doesn't quite work that way.  In other words, you don't calculate the IU for each loan, get a percent for each, and then average the percents.  (That's how you came up with 50%, I think.)

Rather, you add up the total amount that the person owes, and divide it by the total amount all of his loans were originally for.

In the scenario you gave his total installment utilization would be:

      (5000 + 40) / (5000 + 500) = 91.6%

Thus the subsequent SSL would give him no benefit.

There might be a benefit to adding the SSL first, getting the score boost and then applying for the $5000 loan.  That would help if the resulting score boost would secure him a better interest rate on his 5k loan.  Once he added the 5k loan, however, his TIU would go up to 91% and he'd lose the boost he got from the SSL.  Still, if he gets a better interest rate, he is saving himself some money over the term of that 5k loan.

[Anonymous]

I really am greatful for all the suggestions. Unfortunately getting a better rate with a sub prime lender may not be in the cards. My FICO 8 scores are TU 628 EX 633 EQ 655. Due to 3 medical derogatory. Now my FICO 9 is TU 686 EQ 682 EX 669. But I'm sure one main financial is going to use my lowest FICO 8 score. So I guess I'll need to take the hits for a while because in 12-18 months with also saving I'm going to try get cheap mortgage for a 30-75k house in Pennsylvania

[newhis]

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@Anonymous wrote:

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@newhis wrote:

I don't know if it is worth the trouble and having 2 new accounts, but you could take the 5K loan, use that to get a SSL loan, pay it down to to $40 or less, and use the money.

One loan will report 100% but the other 1%, and together you will be at 50%. As you pay down your main loan you will get extra points. When you finish your 3 year loan you will still have 2 years left on your other loan.

I think is better to just get the loan you need, then down the road decide if you need a SSL with a higher line and not just $500.

---

Hey Newhis!  I just love the way you jump in to help people out.  That's great.

As a quick aside, the installment utilization calculation doesn't quite work that way.  In other words, you don't calculate the IU for each loan, get a percent for each, and then average the percents.  (That's how you came up with 50%, I think.)

Rather, you add up the total amount that the person owes, and divide it by the total amount all of his loans were originally for.

In the scenario you gave his total installment utilization would be:

      (5000 + 40) / (5000 + 500) = 91.6%

Thus the subsequent SSL would give him no benefit.

There might be a benefit to adding the SSL first, getting the score boost and then applying for the $5000 loan.  That would help if the resulting score boost would secure him a better interest rate on his 5k loan.  Once he added the 5k loan, however, his TIU would go up to 91% and he'd lose the boost he got from the SSL.  Still, if he gets a better interest rate, he is saving himself some money over the term of that 5k loan.

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Sorry I wasn't clear, in my head when I wrote 'take the 5K loan, use that to get a SSL loan, pay it down to to $40 or less, and use the money', I meant, 'get the $5,000 loan, then use that money to get a $5,000 SSL with Alliant, pay down to $40, get almost all the $5,000 back, and use the money'.

So in my mind was (5000 + 40) / (5000 + 5000) = 50.4%

Sorry about that.