Number Of Installment Loans

[Gardenhand]

Hello---wondering if the number of installment loans effects the Fico scores. I've read that having two installment loans is best for getting the most points out of the mix category. More recently I've read that one installment loan paid down to nine percent remaining balance was enough to squeeze the mix points out. I have two secured installment loans. I want to close one because the monthly payment is about thirty dollars and I'm trying to get my DTI as good as possible. However I don't want to loose any Fico points by closing one of my two installment loans. Can anyone tell me if there will be a negative effect on my scores from closing one of my two secured installment loans?

[gdale6]

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@Gardenhand wrote:

Hello---wondering if the number of installment loans effects the Fico scores. I've read that having two installment loans is best for getting the most points out of the mix category. More recently I've read that one installment loan paid down to nine percent remaining balance was enough to squeeze the mix points out. I have two secured installment loans. I want to close one because the monthly payment is about thirty dollars and I'm trying to get my DTI as good as possible. However I don't want to loose any Fico points by closing one of my two installment loans. Can anyone tell me if there will be a negative effect on my scores from closing one of my two secured installment loans?

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I dont see a problem here in closing one loan, I dont even recommend that anyone have an installment loan just for Fico points (unless at the beginning of a rebuild) as you typically only get the good boost right before the loan pays out and then a decrease (in Fico 8 models) when the last loan reports closed. 

[Gardenhand]

So I closed one of my two secured installment loans as planned. I'm very surprised with the results. I closed it for DTI reasons and was just hoping not to take a Fico hit. Quite the opposite happened.

Transunion up 25 points from 745 to 770

Equifax up 32 points from 730 to 762

I had two secured loans---one with a little over 50 percent balance and one with about 40 percent. I paid the one off to zero and the other down to nine percent. Very happy with the results!

[Anonymous]

Delighted to hear your results!  Just so you (and anyone reading your thread) won't think that what you did was some mysterious voodoo act, here are the two factors that we know to be involved:

From the Credit Mix category (10%):

     *  Does the consumer have at least one open installment loan?

In your case, you had two, so paying off one still allowed this factor to have a YES to it.

From the Amounts Owed category (30%):

    * How much of your open installment debt is paid off?   Look at all the open loans you currently have taken together.  Take the total amount owed on them, and divide that by the total amount of the original loans.  That will be a %.  If the % is very high (e.g. 92%) you will get no points from the factor.  If the % is low (e.g. 9%) you will get all the points from this factor  If it is in between (depending on where) you will get some points.

     In your case, you paid off your open debt down to 9%.

Note that the key for you is making sure you keep your remaining open loan open loan as long as possible.  When it closes, you will lose the points from both the factors listed above, though you will still have a well-paid closed installment loan on your profile, which also gives you points (some FICO models more than others). 

On the other hand, you may not need those points by the time it closes -- it sounds like you may be looking to take out a huge loan (e.g. for a house) where DTI is important.  By the time your current loans close, you will already have your house, which will change your open installment debt ratio anyway.

[dman23]

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@Anonymous wrote:

Delighted to hear your results!  Just so you (and anyone reading your thread) won't think that what you did was some mysterious voodoo act, here are the two factors that we know to be involved:

From the Credit Mix category (10%):

     *  Does the consumer have at least one open installment loan?

In your case, you had two, so paying off one still allowed this factor to have a YES to it.

From the Amounts Owed category (30%):

    * How much of your open installment debt is paid off?   Look at all the open loans you currently have taken together.  Take the total amount owed on them, and divide that by the total amount of the original loans.  That will be a %.  If the % is very high (e.g. 92%) you will get no points from the factor.  If the % is low (e.g. 9%) you will get all the points from this factor  If it is in between (depending on where) you will get some points.

     In your case, you paid off your open debt down to 9%.

Note that the key for you is making sure you keep your remaining open loan open loan as long as possible.  When it closes, you will lose the points from both the factors listed above, though you will still have a well-paid closed installment loan on your profile, which also gives you points (some FICO models more than others). 

On the other hand, you may not need those points by the time it closes -- it sounds like you may be looking to take out a huge loan (e.g. for a house) where DTI is important.  By the time your current loans close, you will already have your house, which will change your open installment debt ratio anyway.

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Great  post. I saved this post awhile back as I wanted to refer back to it when one of my two installments loans will be paid in full.

August 1st one of the installment loans will be paid off. The remaining installment loan (4 year car loan) will be half-way done in August. I'll be interested to see what my scores change by.

[RonM21]

Glad you had a positive outcome. I think more than anything its based on each individual credit profile.

[dman23]

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@RM21 wrote:
Glad you had a positive outcome. I think more than anything its based on each individual credit profile.

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Agreed.