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Installment utilization rates

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Anonymous
Not applicable

Installment utilization rates

Looking at some of the info it looks like installment utilization rates might also factor into my FICO scores?  I have my credit cards under 5% but I do have installment loans (student loans defered) that are accruing intrest.  I do make payments to them periodically, but they are still above the original balance.  Would it help my FICO to pay these balances down?  If so, there are several accounts do I pay a little to each, or a lot to a few to get the % down?

Message 1 of 4
3 REPLIES 3
MarineVietVet
Moderator Emeritus

Re: Installment utilization rates


@Anonymous wrote:

Looking at some of the info it looks like installment utilization rates might also factor into my FICO scores?  I have my credit cards under 5% but I do have installment loans (student loans defered) that are accruing intrest.  I do make payments to them periodically, but they are still above the original balance.  Would it help my FICO to pay these balances down?  If so, there are several accounts do I pay a little to each, or a lot to a few to get the % down?


It's true that installment utilization is factored into scoring but it's such a small part as to be virtually meaningless. Revolving credit utilization is weighed much, much more heavily and is 30% of your total score.

 

So paying down the balances on installment loans, while a good thing as far as lowering overall debt, will not really help scorewise. Concentrate on responsible management of revolving credit.

 

 

 

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Message 2 of 4
RobertEG
Legendary Contributor

Re: Installment utilization rates

FICO, for many reasons, does not score "installment utilization" the same as revolving utitlization.  First, with an installment loan, you dont really have any credit to "utilize."

The principal has already been paid to the consumer, which is not true of a credit limit on a revolving account.  It is a percent of remaining balance of the principal loan amount.

 

Unlike revolving credit, where interest accrued is added to the balance due, installment loans set payments based on principal plus interest, but the remaining principal balance does not reflect future interest due, as it may never actually become due if you pay the balance now.

 

Additionally, most installment loans are secured by a lien on the property purchased with the loan, making them less likely to come into delinquency.  They dont have a comparable risk of delinquency, and are thus scored much lower.

 

Accordingly, % util on revolving accounts is not comparable to a corresponding ""util of installment, and is treated very differently by the FICO risk analysis.

The best anecdotal evidence seems to imply that installment "util" is weighted less than 10% of a corresponding revovling % util, but just a ballpark guess.

 

Being over the original principal balance would most likley raise some serious eyebrows.  How did that happen?  It implies something bad in the payment history.......

That is something about which I would have concern, at least in explaining the circumstances.

 

 

Message 3 of 4
Anonymous
Not applicable

Re: Installment utilization rates

They are student loans, so no payment is due on them while I'm still in school. They accrue interest which is added to the principle balance.
Message 4 of 4
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