@Anonymous wrote:Now I understand you to be saying that either way
your principalthe amount that interest is being calculated on will be reduced (whether the payment is recorded as a Regular Payment or Additional Principal Payment in the wording of my CU), you'll get the same benefit FICO wise (by balance being reduced), but you get the benefit of not having to make monthly payments.
I was thinking that if you chose Regular Payment, as opposed to the Principal Payment, they'd continue to calculate interest on the higher principal and just sort of 'escrow' the extra payments for you. That did NOT sound like a good situation.
I'm asking since I have a personal loan that I'm itching to pay off, and I probably will if my HELOC goes as expected. But with recent unanticipated expenses, I may not be able to pay it off completely...but I want to not have to worry about it's monthly payment while I'm trying to pay down 0% things as quickly as possible as well. So if I paid a year+ of it, that could be a good compromise. It was a $15k loan, currently at $12k. So if I paid it down below 50 or 60%, that'd be good.
If you get that HELOC at a reduced interest rate from your loan, I'd pay it down to like 5 or even 1% based on current information which is admittedly incomplete... but why not take the opportunity to refinance that loan down if you can?
We tell people (rightly or wrongly) not to close $0 AF cards as a general rule, if we can get an installment loan down to where the interest on a small balance is below whatever our trivial line is, why not do that and sit on it anyway and keep racking up the pretty OK's and pushing the date it falls off your report further out?
Agreed simply paying off a debt feels great, but while it might not be the same psychological effect, think there's valid FICO reasons even if I'm utterly wrong on my theory on how installment utilization works to do this anyway if your lender allows it.
@jamie123 wrote:
@Anonymous wrote:I've read the thread, but my brain isn't all that sharp this morning.
I'm understanding you to be saying that when you're going to make an extra payment to an installment loan, that it's better for your score for it NOT to go to principal. Rather it's better to push your payment due date out into the future. Does that mean that you're still paying interest on the higher amount, since your principal hasn't decreased?
I am pretty sure that's what my local CU does when I make extra payments (pushes the due date out). I round up on my loan payments for my car loan and another loan with them, and rather than saying the amount of my payment being due in July, they each say a bit less, relative to what I've overpaid in the past couple months. Also, if I go to make a payment manually, this is the choice I get:
I've been kinda miffed, now once I saw that when I overpay on an auto pay (ask them to take $300 instead of $274.23 or whatever) it doesn't go to principal automatically. Interested to see if I'm reading you right AND if you can point me to the place where you (or someone) explained why it extending the payment vs. principal is good for fico.
Well...It is a choice you need to make...You need to decide if it is worth it....
You get extra points on your FICO score for having an OPEN installment loan on your reports. Once you pay off and close the installment loan you will lose most of those points. I would have to say that the average point loss seen on these forums from someone closing their last installment loan can range from 10 to 40 points with most people losing 20 to 30 points.
What we are also testing here is at what payoff ratio you gain the most points. When someone first gets an installment loan it doesn't do too much to their scores, good or bad. When someone pays off their last open installment loan they lose 20 to 30 points but where did these points come from? We are testing as to what remaining balance percentage gains you the most points.
We can then get a cheap share secured loan from a credit union with the longest term possible. Pre-pay the loan to hit the start of the "sweet spot" for points gain and then let it ride to the end of the loan term. You can do this with any kind of installment loan whether it is a mortgage, auto loan or personal loan. I personally have two $500 share secured loans with a credit union because the interest rate is only 2.7% which only costs me $28 total interest over 4 years per $500 loan.
I am planning on apping for a mortgage in the near future. If I can bump my score up into the next tier for mortgage loan interest rates and get a mortgage loan at .125% less interest it will save me thousands of dollars over the life of the mortgage. The $56 in interest that I'm paying for the two shared secured loans will have been well worth the cost.
To answer your question...
If you pay extra on a regular payment you will just be prepaying principal+interest and move the next due day out.
If you want to reduce the principal amount and shorten the loan term you need to make two payments per month. Make the regular monthly payment for the exact amount due. Then go back and specifically make a principal only payment. This will reduce the amount of interest that you will pay over the life of the loan and shorten the term.
Well for people that never had installment history and thin files, when we first started suggesting installment loans would be a good idea to tack on from a credit building perspective IIRC virtually everyone got an increase. Standard well-characterized mix of credit which held on both EQ FICO 04 and FICO 8 Scorewatch historically.
Where I got interested in this topic was I had figured if I had open installment loans, all good... but then I got slapped when my auto loan was paid, and then took another hit when my original secured installment loan was paid when I had two other open installment loans on the report. Mix of credit may be both open and closed accounts as we've always theorized in the past, but installment utilization might be another part of the scorecard (almost assuredly is come to think of it) altogether. Possible FICO 8 changed mix of credit to only open accounts or it could be another part of the algorithm too, we did see some changes from FICO 04 scoring when Scorewatch switched here and open accounts are more important on the newer version.
I'm sort of losing my opportunity to play with this as I will hopefully be mortgage-enabled in the near future, but otherwise after some testing here I would've simply paid off both my secured loans, seen the resulting score, and then opened a new one... my guess is I would've gotten no or maybe minimal points for it as I have non-trivial installment history now. I will probably do so anyway with a mortgage still but I'm afraid the mortgage will dominate the installment scorecard unless it's seperate which I don't know whether it is or not. May depend on specific model too.
@jamie123 wrote:
@Anonymous wrote:Hmm, with what jaimie said, I was thinking 'that doesn't apply to me', but with what Revelate said...I guess it could.
I have a student loan that, if I just pay minimum, will be there until 2024. My current car loan is thru 2019 (though I'm waffling about what to do car wise and when). And of course there's the new 30 year mortgage and hopefully the soon-to-be HELOC that will hopefully report as installment. I don't know that, I would worry about the hit or bump enough to NOT pay the personal loan in full if I can. The emotional win and not seeing that line item on my online account might outweigh other factors.
But interesting to ponder.
The installment loan points only matter if you are trying to squeeze a few extra points out for a mortgage or auto loan and really only come in effect on thinner and younger files. Once you have an aged and thick file with a mortgage and your scores are over 760 it doesn't really matter anymore in my opinion. You would already recieve the best rates for a mortgage, auto loan or HELOC and those are really the only debts where you could actually save money with lower interest rates. If you have built your portfolio of credit cards correctly and keep them open, your scores will naturally keep rising year to year.
Once your scores are above 760 why pay extra interest cost to boost scores? It might not be worth keeping an installment loan open that is costing you interest.
Yeah but you only know the world as it's presented to you 
. I ain't gold plated. Longer term you're absolutely right, though I may still optimize even once clean just to have a buffer. Maybe, ask me in 3 years!
I do agree north of 760 there simply any rational value (unless you're constantly depressing it with applications or what not) but there's a lot of people including yours truly who are chasing things like a mortgage with dirty files and I'm still dirty for another 2.5 years. Which is a lot of time even from my perspective hah.
Average consumer credit score is somewhere around 700... SMH seeing I'm higher than average with my file.
In case I wasn't clear, I don't suggest doing this with non-trivial money: i.e. 4% on a balance of $100 is $4 per year. Always prioritize finances before FICO, always always... but if the financial costs are irrelevant, one's credit score isn't a bad place to waste the cost of a meal (or less in the above example) to use Tortiose's excellent comparison.
And besides...
What the heck are we going to do with our free time once our scores are north of 760? 
@jamie123 wrote:And besides...
What the heck are we going to do with our free time once our scores are north of 760?
Hahahaha, no kidding!
I'm fairly certain I'm going to have to develop an incredulity scale for the reactions whenever I start dating as this is a throughly unusual "hobby."
@Revelate wrote:
@jamie123 wrote:And besides...
What the heck are we going to do with our free time once our scores are north of 760?
Hahahaha, no kidding!
I'm fairly certain I'm going to have to develop an incredulity scale for the reactions whenever I start dating as this is a throughly unusual "hobby."
At least we know Revelate runs. I look back over the last many years and there's always been some interest that necessitates large amounts of online research and forum time. It's rotated to different interests. I know it's probably time to move on from this one, but haven't found something to replace it. Interesting that some of these have cost me a LOT of money and some have saved me or earned me a LOT of money. I guess with that in mind, I need to be selective the next time.
@Anonymous wrote:
@Revelate wrote:
@jamie123 wrote:And besides...
What the heck are we going to do with our free time once our scores are north of 760?
Hahahaha, no kidding!
I'm fairly certain I'm going to have to develop an incredulity scale for the reactions whenever I start dating as this is a throughly unusual "hobby."
At least we know Revelate runs. I look back over the last many years and there's always been some interest that necessitates large amounts of online research and forum time. It's rotated to different interests. I know it's probably time to move on from this one, but haven't found something to replace it. Interesting that some of these have cost me a LOT of money and some have saved me or earned me a LOT of money. I guess with that in mind, I need to be selective the next time.
Yeah I have more socially acceptable hobbies to lead with at least . I'm all about hobbies that are cheap in direct financial costs, though in a money vs. time analysis maybe not so smart.
I can honestly state that without this forum or a similar analog I probably wouldn't be able to buy a house right now. It's sort of difficult to argue this wasn't time well spent when it accomplished a non-trivial life goal, and that doesn't remotely suck. Also in thinking of the reactions, I'm going to get some strange ones whenever I drop this particular subject in the usual dating disclosures, but it might be a somewhat unique canary in the coal mine. That has value too I'm thinking.
That's interesting that you've had multiple hobbies that mandated copious amounts of online research and forum time; I've certainly wasted a whole ton of time online in various games over my life (could make the argument this forum and my wayward testing of changes on my credit report is an analogue to what I used to do in online games) but not sure if I've really experienced similarly. I read a bunch of books and did some online research when I started running, and I did similar when starting soccer refereeing, but not so much forum time. Mind sharing the financial costs or benefits associated with some of them?