Paid off Student Loan, score plunged 40 points...damn

[Dalanar]

I should've listened to my instincts to keep the student loan alive and just pay the absolute minimum.  But I wanted that zero balance.  Not thinking that I have no other active installment loan (no mortgage), I decided to pay my student loan off (was at around $1000).  This appears to have caused a drop of 40 points.   According to the reports, one of my negative factors is noted as a lack of installment loans.  I am preparing to buy my first home next year.  Does it make sense to go and get some small installment loan ($1000 TV, small furniture, etc.) now to have that credit mix?  Would that raise my score?

Thanks.

[CH-7-Mission-Accomplished]

Just get a share secured card from a credit union (DCU, Alliant, SDFC).  Get one for the longest term available with the lowest possible payment allowed.  The rate should be around 2% to 3%.

So if the minimum allowed payment is $10 and the maximum loan term is 60 months, get a $600 loan for 60 months.  (You put in your $600 and they give it back to you -- that's how most of them work).

Even a two year loan using the same idea works.  You just don't want to be opening and closing these things because they will hurt your AAofA.  No point in doing that.  Once you get a car loan or some other installment loan, you can probably just pay it off (I say probably because it seems whenever you pay off an installment loan you get a score drop -- even when you have another one).

You just don't want the darned thing paying off before you get your new mortgage and you lose all the points again.

And no point paying 12% or 18% buying something you don't want or need just to get an installment loan -- when you can do this for 3% and you get your money back.  They give you your $600 back right away and then as the loan is paid off, they usually release the freed up principal in your savings account.

The payments will be almost nothing and the interest will be like $3/month average -- so like a $36/annual fee credit card.

If you really want a boost, when they give you back your $600, after the first monthly payment comes due, make a payment of $125 to get it under 80%.  That will boost your score.  It will just pay off about 13 months earlier than 60 months.

[Dalanar]

Thank you.   Are you referring to a Secured credit card at the credit union or just a personal loan?   I don't want to have another credit card to manage, but don't mind taking out a small $600 loan over five years

Thanks for the clarification.

[Revelate]

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@Dalanar wrote:

Thank you.   Are you referring to a Secured credit card at the credit union or just a personal loan?   I don't want to have another credit card to manage, but don't mind taking out a small $600 loan over five years

Thanks for the clarification.

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Share secured installment loan I think he meant

Don't do it from DCU, do the 5 year from either Alliant or SDFCU and turn right around and pay 91% of it back immediately and you'll likely regain all the points you lost other than the penalty (if any) for the new tradeline from an AAOA perspective.

Then sit on your hands and make a $1 payment every six months or whatever to keep fee monsters away.

[SouthJamaica]

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@Dalanar wrote:

Thank you.   Are you referring to a Secured credit card at the credit union or just a personal loan?   I don't want to have another credit card to manage, but don't mind taking out a small $600 loan over five years

Thanks for the clarification.

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He's talking about a savings account-secured loan from Alliant.

You just go there, put  $550 in savings, then take out a 'share secured' loan (no credit check or anything) for $500, then pay off 80% or more with the savings account