@Anonymous wrote:
@Anonymous for your reply @SouthJamaica! My understanding is that utilization of installment credit has much lower score impact than for revolving credit, so I was thinking the main downward impact would be based on having a hard inquiry (if there is one) and affect on average age of accounts. I appreciate your estimate of how it would affect score. That's more than I would've guessed, though it's possible that even so the short term increase in score from other things would result in enough net gain that it would make sense for me. I'd be planning a pretty long timeline to have it paid down to 9%.
@Anonymous again for your reply @Anonymous. BTW, when I posted before I didn't realize that you wrote that thread you linked to about the share secure loans, so thanks for posting that. As I mentioned, that's indeed where I got the idea (I wasn't really even familiar with that kind of loan before).
According to CreditKarma, my average age of accounts is 11 Years, 3 Months, but they say they average the age of open credit accounts (2). How would you say to calculate it?
Karma is wrong. Closed accounts count too. Funnily enough, even the scoring model Karma uses (VantageScore 3.0) counts closed accounts in its age-based factors. The summary software that Karma uses to show users their AAoA dates back many years ago, back when Karma was not using Vantage 3.
The way you calculate your AAoA is to compute how old (in months) each account is. That's the difference between today and the date it was opened. Date closed doesn't matter. Add up all those months. Then divide by the total number of accounts. So if you had 4 accounts that added up to 100 months, that would be an AAoA of 25 months, or just over 2 years. The final number is always a number of years. So in that example you'd have an AAoA just a little bit more than 2.0.
Installment utilization is scored much lower than revolving utilization, right?
I don't know what that question means. Are you asking whether installment utilization has a smaller impact on one's score than revolving utilization? If that's what you mean, then yes that is definitely true. Still IU is part of the Amounts Owed category (which is 30% of your score) so it can definitely have a real impact.
That's an interesting insight about credit mix, thanks.
> Some of the drawbacks to your plan is that you will be paying interest on the loan, whereas from a purely financial perspective you'd be be paying no interest if you simply used the cash that you would otherwise be using to secure the loan to pay off the CC debt.
That's true. It'd be low interest though.
Re: #1 -- I think paying off my credit card would give me enough of an increase in score, so if I'm going to do that with cash I don't think there'd be much incentive to do a secured loan just for score increase.
It depends on what incentive you need. The score increase you will get from the SSL technique is about 30 points. If that is not much incentive, then of course don't do it. You explain further down that your interest is in buying a house. The TU and EQ mortgage models don't give you any benefit from a low IU, so I would not push the idea of an SSL in your case.
My main interest is in getting my score into the excellent range to be able to apply for a mortgage in the not distant future (http://ficoforums.myfico.com/t5/Mortgage-Loans/Specifically-how-does-applying-for-new-credit-prior-to-mortgage/td-p/4862152). I guess if I actually do apply in the near future there wouldn't be much point to having a secured loan to pay off the credit card since I wouldn't be able to apply those funds to down payment, etc. anyway, and it'd be better to have applied for no new "credit".
If I was going to apply for new credit I guess a credit card with a good balance transfer offer would make more sense for dealing with my current credit card utililization because I could hold on to more cash to apply to house purchase expenses sooner and get some credit score help from increasing my available credit limit and lowering my overall utilization.
You may wish to try to learn more about how CC debt works. If you open a new credit card and transfer all your CC debt to that card, you will not have altered your CC debt at all. You will have just placed it on a new card. Indeed, since all the debt would be on one card, would would likely be close to be being maxxed out, that approach would likely harm your score (though it is true that the additional CL would lower your total utilization to some extent).
Since you want to buy a house in the next two months, you should avoid trying to play complex games with your cards and scores and just do straightforward stuff. No new accounts. Pay all your cards to zero except one, on which you should leave a small balance (e.g. $20). If you cannot afford to do that, then pay the remaining card down as low as you can. You should definitely aim to make sure that your remaining card is at < 29% of its remaining credit limit and you should also aim to have your total utilization at < 8.9% if you can. Having as many $0 balances on your cards is a good idea -- the mortgage scoring models like that a lot.
