Question about installment loans and FICO scoring

[Bizambish]

So I am trying to maximize my credit score and I’m trying to figure out what the best approach is with paying down installment loans.
What I have is:

Student Loan: 17k / original 25k
Auto loan: 4800 / original 25k
Installment loan from CU: 440/ 1000 original
And a lot of closed student loan accounts that were consolidated and/or transferred

I’m looking to pay off both the installment loan and the auto loan within the next month and I’m trying to decide if it would benefit score the most to pay them off to zero (as the student loans still count as installment debt for credit mix??)
Or to pay down one or both of them to say 2% of the original balance.
I guess it comes down to whether or not the student loans are calculated as installment debt for credit mix purposes?

Thanks for any insight you all can provide! I always learn something new coming to these boards

[dynamicvb]

Some of the experts will chime in, but it is my understanding that student loans are counted the same as installment loans.

[SouthJamaica]

---

@Bizambish wrote:
So I am trying to maximize my credit score and I’m trying to figure out what the best approach is with paying down installment loans.
What I have is:

Student Loan: 17k / original 25k
Auto loan: 4800 / original 25k
Installment loan from CU: 440/ 1000 original
And a lot of closed student loan accounts that were consolidated and/or transferred

I’m looking to pay off both the installment loan and the auto loan within the next month and I’m trying to decide if it would benefit score the most to pay them off to zero (as the student loans still count as installment debt for credit mix??)
Or to pay down one or both of them to say 2% of the original balance.
I guess it comes down to whether or not the student loans are calculated as installment debt for credit mix purposes?

Thanks for any insight you all can provide! I always learn something new coming to these boards

---

The student loans are considered installment loans.

Yes it's best to pay loans down to something small but more than zero, in terms of your FICO 8 and FICO 9 scores. But the effect on other scores is less clear. My experience with mortgage scores has been: TU FICO 4 reacts similarly but less strongly; EX FICO 2 and EQ FICO 5 do not care.

[Bizambish]

Great! Thank you both for chiming in. I think I’m going to try paying them down to a small % and see how it goes and then subsequently pay them off and see what the difference is. Will report back!

[Anonymous]

The key issue is: How does each lender handle prepayment?  Prepayment is where you pay the balance on a loan down to a very small balance.

(1)  Some lenders will require that you keep making the same monthly payment.

(2)  Other lenders will cause the "due date" of the next payment to be pushed way into the future.

If all of your lenders do #1, you could pay them all to 8% of their original amount, and then one by one they will pay off.  Until they all pay off, you will get a nice score boost.

Better is if you can find one that does #2.  In that case you can pay that loan to a small amount, and if that projects the due date to way in the future, you can pay the others off right away.

By "small amount" make sure that it is not an ultra tiny amount like $5.  Tiny amounts often cause the lender to forgive the remainder and close your loan.  Instead make the small amount greater than one full payment and also greater than $20.

[Anonymous]

Nothing much to add since the other members have given nice inputs.

Regarding your student loans.

What type of loan do you have? Federal student loan or private student loan? How are you planning to pay it off? Student loan can be a hurdle in life.

[Bizambish]

Thank you Stacey. I have one federal student loan. Originally was 25k across 4 loans, now it’s down to 17k on one. I make a very small monthly payment right now because I’ve been focusing on paying other debts and investments. Once everything else is wrapped up I’m going to apply funds towards that and hopefully pay it off within the next 18 months or so.
Thanks again everyone!

[Revelate]

Have we found many lenders that don't push it into the future @Anonymous?

I know DCU of course is borked for this, which is one reason I probably won't go for them on my auto loan this time, but I can't see this as being very common?

[Anonymous]

Yeah.  Unfortunately a huge number of lenders (30+) that we tried refused to permit prepayment (or only let you prepay three months in advance).  I had thought initially that it would be easy to find lenders that (a) offered Share Secure Loans and (b) permitted prepayment of an arbitrarily large amount the way Alliant did.  It turned out that banks/CUs that did (a) were easy to find but banks/CUs that did both (a) and (b) were almost impossible to find.

Naturally I'd be delighted to discover examples where someone on the forum has confirmed both (a) and (b) in a live loan app and paydown -- or at second best someone who has confirmed via a customer service rep that their bank will do both (a) and (b).  (If all we had was a CSR confirmation we'd probably need that to be duplicated by more than one person calling in.)

The only certain options we know of as of today are Navy Fed's SSL (large minimum loan amount for a 60-month loan) and Alliant's unsecured loan (drawbacks: 6-month minimum prior mmebership is required, hard pull, and if the applicant's scores are shaky they may well be denied).

Again, if anyone can find other tested options I'd be delighted!

[jamie123]

---

@Anonymous wrote:

Yeah.  Unfortunately a huge number of lenders (30+) that we tried refused to permit prepayment (or only let you prepay three months in advance).  I had thought initially that it would be easy to find lenders that (a) offered Share Secure Loans and (b) permitted prepayment of an arbitrarily large amount the way Alliant did.  It turned out that banks/CUs that did (a) were easy to find but banks/CUs that did both (a) and (b) were almost impossible to find.

Naturally I'd be delighted to discover examples where someone on the forum has confirmed both (a) and (b) in a live loan app and paydown -- or at second best someone who has confirmed via a customer service rep that their bank will do both (a) and (b).  (If all we had was a CSR confirmation we'd probably need that to be duplicated by more than one person calling in.)

The only certain options we know of as of today are Navy Fed's SSL (large minimum loan amount for a 60-month loan) and Alliant's unsecured loan (drawbacks: 6-month minimum prior mmebership is required, hard pull, and if the applicant's scores are shaky they may well be denied).

Again, if anyone can find other tested options I'd be delighted!

---

Kudos to you CreditGuyInDixie for doing all this research! I've been lurking your thread on this very issue.

Don't you get the feeling that all these lenders are conspiring against consumers in order to be able to charge higher interest rates on loans? I mean they must realize exactly what they are doing because they are immersed in credit apps every day.

Take Alliant as an example...

1. They know most people don't take care of their credit score until shortly before they need it so they make you be a member for 6 months before you can do an SSL. I'm sure they ran the numbers on how many people this would discourage from getting an SSL!

2. They make you take a HP for the SSL which they know will knock your scores down for a bit and they might even deny you from borrowing your own money! I thought that the whole idea behind an SSL was to help people with terrible credit to start rebuilding? (Guess not.)

3. They prevent you from prepaying the loan down so you can't be walking around with a boosted score for any length of time. (Wouldn't want that now would we?)

4. They tied term length more closely to amount borrowed so that they can make more interest on YOUR money that you are BORROWING to raise your credit scores. (Want higher scores so you pay less interest? Were taking more money upfront for that privilege!)

This might be something to bring up to the CFPB. Well...Once a Democrat is back in office!

These changes appeared so suddenly and industry wide that it should be considered a conspiracy, although I'm quite sure that there have been seminars held concerning this and it is just considered best business practices. I bet there are YouTube videos talking about it!