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Personal Loans and Credit Scores

firehawk73
Valued Member

Personal Loans and Credit Scores

So how are personal loans viewed in terms of credit scores? I just got a loan for $16,000 at 5.99% for 36mos. I am using this to wipe out the remaining CC debt (not all, still keeping 1 CC at <5% Util). What should i expect in terms of score changes?

Message 1 of 10
9 REPLIES 9
SoCalGardener
Established Contributor

Re: Personal Loans and Credit Scores


@firehawk73 wrote:

So how are personal loans viewed in terms of credit scores? I just got a loan for $16,000 at 5.99% for 36mos. I am using this to wipe out the remaining CC debt (not all, still keeping 1 CC at <5% Util). What should i expect in terms of score changes?


Since you're using the loan to pay off some of your CC debt, it's going to have less impact than if it was in addition to carrying those CC balances. But you have to realize that, especially right at first, it's going to weigh heavily [downward] because its utilization rate will be at or near 100%. As that goes down over the term of the loan, your score will improve.

 

I don't know you or anything about you, so excuse me if this is unnecessary information, but I want to warn you against the temptation of racking up new charges on those cards you're paying off--which completely defeats the purpose of getting the loan. I know from experience how tempting it can be!

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Message 2 of 10
TravelNut
New Contributor

Re: Personal Loans and Credit Scores

 


@SoCalGardener wrote:

@firehawk73 wrote:

So how are personal loans viewed in terms of credit scores? I just got a loan for $16,000 at 5.99% for 36mos. I am using this to wipe out the remaining CC debt (not all, still keeping 1 CC at <5% Util). What should i expect in terms of score changes?


Since you're using the loan to pay off some of your CC debt, it's going to have less impact than if it was in addition to carrying those CC balances. But you have to realize that, especially right at first, it's going to weigh heavily [downward] because its utilization rate will be at or near 100%. As that goes down over the term of the loan, your score will improve.

 

I don't know you or anything about you, so excuse me if this is unnecessary information, but I want to warn you against the temptation of racking up new charges on those cards you're paying off--which completely defeats the purpose of getting the loan. I know from experience how tempting it can be!


@SoCalGardener Does the utilization affect on an individual level or on an aggregate level for the personal loan?  For example, If you have two other personal loans that are at 50% utilization each and you introduce a new loan at 100% does the FICO scoring go off the average of the 3 loans or does it dock you points for that one that is at 100%?

Message 3 of 10
SouthJamaica
Super Contributor

Re: Personal Loans and Credit Scores


@firehawk73 wrote:

So how are personal loans viewed in terms of credit scores? I just got a loan for $16,000 at 5.99% for 36mos. I am using this to wipe out the remaining CC debt (not all, still keeping 1 CC at <5% Util). What should i expect in terms of score changes?


Most likely it will result in a score increase, but I would need to know what's in your credit profile to give you a reasonable guesstimate.


Total revolving limits 698000 (605000 reporting) FICO 8: EQ 721 TU 742 EX 715

Message 4 of 10
firehawk73
Valued Member

Re: Personal Loans and Credit Scores

Total CC util was roughly <9%, I will still use 1 CC and keep it under 8% util (Groceries, gas etc), with total CC util at <1% AZEO.

Naturally, installment % will go up at stated in an earlier reply. I just didn't know how FICO scores react when looking at CC vs Loans.

HP's are 3 EX, 1 EQ, 1 TU current scores are 780ish across the board

 

Message 5 of 10
SoCalGardener
Established Contributor

Re: Personal Loans and Credit Scores


@TravelNut wrote:

 


@SoCalGardener wrote:

@firehawk73 wrote:

So how are personal loans viewed in terms of credit scores? I just got a loan for $16,000 at 5.99% for 36mos. I am using this to wipe out the remaining CC debt (not all, still keeping 1 CC at <5% Util). What should i expect in terms of score changes?


Since you're using the loan to pay off some of your CC debt, it's going to have less impact than if it was in addition to carrying those CC balances. But you have to realize that, especially right at first, it's going to weigh heavily [downward] because its utilization rate will be at or near 100%. As that goes down over the term of the loan, your score will improve.

 

I don't know you or anything about you, so excuse me if this is unnecessary information, but I want to warn you against the temptation of racking up new charges on those cards you're paying off--which completely defeats the purpose of getting the loan. I know from experience how tempting it can be!


@SoCalGardener Does the utilization affect on an individual level or on an aggregate level for the personal loan?  For example, If you have two other personal loans that are at 50% utilization each and you introduce a new loan at 100% does the FICO scoring go off the average of the 3 loans or does it dock you points for that one that is at 100%?


I'm not an expert (by any means) when it comes to loans and how they affect scores, but I THINK it would look something like this: each loan is weighted on its own factors, as is each credit card you have, AND your overall credit is weighted, too. So if you have two loans at 50% utilization and one at 100%, the first two will impact your scores better than the last one, which will pull your score down a good bit. But your overall utilization is also factored in, so all those 0% CCs you'll have after using this loan will affect your score positively. Hopefully, someone who actually knows what they're talking about will chime in! Smiley Very Happy

Amazon Prime Store CardAmerican Express Blue Cash Preferred CardAmerican Express Everyday CardAmerican Express Platinum CardBank of America Customized Cash VisaCapitalOne Quicksilver MastercardCapitalOne Quicksilver Visa CardCapitalOne Walmart Rewards MastercardChevron Texaco CardCiti Double Cash MastercardDiscover More CardJCPenney Gold MastercardOverstock.com CardSportsmans Guide Rewards CardSynchrony Home Card
Message 6 of 10
brk1971
Regular Contributor

Re: Personal Loans and Credit Scores

I think this is far more nuanced / profile specific. 

  • Yes, new accounts are generally a penalty to the score.
    • But... if you're already penalized for a new account, the impact is negligible or non-existent IME.
  • Yes, the 'installment loan balance to original loan amount' (aka high installment utlization) remains as a reason code for a long portion of the loan.
    • But... borrowing enough to repay 11% immediately (to get it below the 89% threshold) reduces or eliminates points draw IME.
  • Yes, decreasing your CC balances will likely improve your scores, unless you're decreasing them within two thresholds without going below one. (e.g. from 8% utilization to 6%)
    • But... this improvement will likley offset any decrease by the new account and high installment loan utilization so no large swings IME.

I closed on a mortgage in March of this year. Since then, I've opened three or four new cards. I only carry a balance if it's at zero percent so my utilization remains low. I have taken personal loans from Discover (Now PIF, 8.99%), Amex (6.9% PiF but not reflected on CR yet), PenFed (6.99% paid to almost zero), and now BestEgg (3.99%) in the past six months. In none of those circumstances did I see a score decrease. My current FICOScore 8 scores as of today are: EQ789, TU792, EX776.

 

Fico8 = EQ 789, TU 792, EX 776 (11/10/2021), util = 1.3% ish
INQ in 12 mo = EQ 10, TU 11, EX 9 (most are mortgage within two combining periods)

Cards =
NFCU: Flagship VS $45k, Plat $24.3k, Plat $10.7k
Amex: Delta Reserve $50k
Citi: DC WE MC $28.8k
Discover: It $19.5k
Barclays: Juniper $15.25k
USAA: PCR VS $15k, RA $5k
UMB: SR VS $15k
PenFed: Path VS $20k, Plat Rew VS $15k
Synchrony: Lowes’s store $25k
BB&T: Bright $10.5k, Bright $6.5k
Cap1: Venture1 Plat MC $10.3k, Kohls store $3k
Comenity: MyCash MC $15k
Wells Fargo: Plat $7.5k
TD Bank: Target MC $6k (Reports as retail card despite now being MC)
BoA: CCR VS $17k
Message 7 of 10
Yasselife
Frequent Contributor

Re: Personal Loans and Credit Scores

@firehawk73 Depends on how your uti% is looking right now. As a reference, I was over 50% utilization overall and my score jumped +40 after I put all that debt into an installment loan. 



Message 8 of 10
SouthJamaica
Super Contributor

Re: Personal Loans and Credit Scores


@firehawk73 wrote:

Total CC util was roughly <9%, I will still use 1 CC and keep it under 8% util (Groceries, gas etc), with total CC util at <1% AZEO.

Naturally, installment % will go up at stated in an earlier reply. I just didn't know how FICO scores react when looking at CC vs Loans.

HP's are 3 EX, 1 EQ, 1 TU current scores are 780ish across the board

 


I would still need to know what other loans you have and their original loan amounts and current balances.

 

As a general proposition you are in the sweet spot when your aggregate open installment loan utilization percentage is 9% or less.


Total revolving limits 698000 (605000 reporting) FICO 8: EQ 721 TU 742 EX 715

Message 9 of 10
Phana24
New Contributor

Re: Personal Loans and Credit Scores


@firehawk73 wrote:

So how are personal loans viewed in terms of credit scores? I just got a loan for $16,000 at 5.99% for 36mos. I am using this to wipe out the remaining CC debt (not all, still keeping 1 CC at <5% Util). What should i expect in terms of score changes?


That all depends on what the utilization rate was for your cards, and the overall revolvers UR.  My guess is that if you were eliminating URs over 50 and maybe 30% you'll get a slight decline.  If you were at less than 30%, especially overall, there may be slight decrease.  The gurus would need additional information before an accurate guesstimate could be derived.  Remember, you're taking a hit for an inquiry, new account, and depending upon your accts age, you might lose some in that category as well, and you'll be above 90% on that new loan for a few months.  I recall seeing nice increases when I passed the 70% mark on loans.  If you can throw a few extra dollars or an occasional extra payment to help you get under 70, it's worth it.  

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