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So the garden begins

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New Contributor

So the garden begins

Its been an interesting journey from having lots of credit to no credit to 1 credit card and now 7 cards and 1 installment loan. Just started the garden process on Aug and seeing how my scores are slowely creeping back up. Ill have the ability to pay off my 0% APR balances on my cards in April and will also be putting down some money on my SOFI loan. The SOFI loan will be my first installent loan that will show up on my account in over 10 years, so I am wondering if there is an advantage to keep this loan or pay it off? I just got in Aug 2019 and its on a 4 year repyament plan, which I could knock that down to 2 years or even sooner. Thoughts? 

9 REPLIES 9
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Contributor

Re: So the garden begins

Others will know better I believe it will help you with your score because it adds to your credit mix. Plus it will give you a history of on-time payments (assuming you're never late).

11/17 - EX 614 | EQ 626 | TU 612
04/20 - EX 649 | EQ 645 | TU 661
Goal - EX 750 | EX 750 | TU 750
Message 2 of 10
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Community Leader
Senior Contributor

Re: So the garden begins

Welcome, @AzCreditGuy. Smiley Happy

 

The presence of an open installment loan that's mostly paid off significantly helps several FICO scores, most notably scores in the FICO 8 family. One open loan is enough.

 

The older scores used for mortgages are largely unaffected by the lack of an open installment loan. Don't bother to go out of your way to have an open loan on your report for the sake of a mortgage applicatioon.

Message 3 of 10
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Valued Contributor

Re: So the garden begins

Welcome!

As the others have said, the presence of an installment loan will help with scores (newer models as @HeavenOhio mentioned.

Good luck!



Message 4 of 10
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New Contributor

Re: So the garden begins

I got the Sofi loan as I needed to restructure some expenses and also to add it to my credit mix. We all know how Fico is with scoring and it seemed that me not having a mix of credit was hurting me. But it also hurts the score when the loan is paid off, which happened to a family who paid off their loan. Score dropped and they started getting the reason why was not enough credit mix? 

Message 5 of 10
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Regular Contributor

Re: So the garden begins

Hi AzCreditGuy and welcome:

 

You have a number of issues and it depends on what you want to do. You mention gardening and that implies that you have no credit needs or wants for the foreseeable “near” future. You will find that “near” is a relative word on this forum. For some of us it means multiple years (2+) while to others it means only a few months. But you finally got the point (like most of us) the hard way. You went “from having lots of credit to no credit…” That my friend is a common journey; because most of us don’t truly understand the word credit. My journey has led me to this definition:

 

Credit:

An intangible concept (much like hope, love, happiness, or despair) that one needs in order to survive in certain societies. It is attainable by many but easily lost by most. In order to get it you must not need it. If you need credit, it is unattainable. When you have it, you best not use it; for when you use it, you will lose it and it will be unattainable for a very long time.

 

Az you are in the right ballpark. You said, “I’ll have the ability to pay off my 0% APR balances…and will also be putting down some money on my SOFI loan.” You are thinking correctly, but not efficiently. This is a forum of fico folks and here is a response I wrote about a year ago to the OCD nature of some of us on the forum. https://ficoforums.myfico.com/t5/General-Credit-Topics/AZEO-Works-but-It-Can-Be-Harmful-Be-Careful-f...

 

SO you want to pay off a 0% loan at the expense (from what you wrote) of a SOFI loan that has interest. Sure paying the 0% balance off will give you a quick FICO mainline high, but then you crash to the SOFI interest rates low.

 

There are two parts of the financial strength equation and we mainly talk about only one here at myFICO. Credit and interest are the two paths that are comingled and have the same denominator. Credit allows you to maximize your return for the money spent. Interest also allow you to maximize the return for the money spent; however, it does it in a different way. They join at the intersection – good credit may lower interest. Low interest requires good credit.

 

There are two adjectives in that equation that are important. Good and Low. Good credit and Low interest. Remember, credit has nothing to do with “good.”  You (and we all did) found out that having a LOT of credit didn’t mean anything initially. We think of credit as available spending power on a credit card or a line of spending power on a home loan. This is not necessarily good credit it is just available credit. Remember my axiom above – “when you use it, you will lose it.” If you have $100K limit on a CC and a $200K home equity line of credit, that’s good;but not necessarily good credit. If you used $80K of your CC limit and have a note for $180K on you HEC, you still have the credit, but it is not available and therefore, not good.

 

You have for a very short period of time maximized your return – you bought something for no physical cash. After a while you will start paying that 18% interest and now have lost all that “maximized return for the money spent.” Notice, this does not meet the intersection, for you have a whole lot of credit and still pay very high interest rates.

 

The same is true if you have a $100K loan (SOFI) and pay 6% interest. You too have not maximized your return. You had the ability to get the loan to buy what you wanted, but now you once again are losing your return.

 

Okay Y, I don’t live in the Bill Gates, Jeff Bezos world.

 

Yep and that is true for most of us on this forum. So now to the point. You said, “I’ll have the ability to pay off my 0% APR balances…and will also be putting down some money on my SOFI loan.” Backwards. Pay the highest interest first even though it will not help your credit score initially.  Your goal should be to maximize your return, so that means pay down the highest interest bill FIRST even though it may not give you the fastest credit score bump.

 

Let’s go through this little example. Let’s say you have these bills:

 

CC #1 $110 due on $500 CL @ 25% APR

CC #2 $200 due on $500 CL @ 15% APR

CC #3 $50 due on $100 CL @ 12.5% APR

You got a Christmas bonus of $50 from your neighbor who kept borrowing your lawnmower. You didn’t expect it butthe guy wanted to stay in your good graces and gave you the bucks. You thank him and want to put it toward something. You have been on myFICO and know that if you pay off that CC #3 you will take your Utilization from 50% to zero and get a bump. You’re smart enough to know it won’t help big time because your total utilization is still at 28.2% (was 32.7%) even though total utilization goes below 28.9% you’ll still get both bumps.

 

Or you pay that $50 toward CC #1 @ 25%. Yes it will not help your individual utilization score (still above 12%) but your total utilization went down just like it did above; however, you have now lowered your INTEREST payments on the remaining balance. In fact you have halved the amount of interest you will pay.

 

So always (from a financial standpoint) pay off or down the highest interest payment you have first. If you have a 0% loan/CC like you have, then let it ride and pay down ANYTHING with interest. In the long run, while this will not maximize your credit score over the minimum amount of time, it will save you the maximum amount of CASH forever.  Since you are gardening, plant some long term items and reap the financial benefits.  Join myFico Anonymous

 

Y

Current FICO 8 Scores:
EQ 792 (12/24/19), TU 819 (12/23/19), EX 824 (12/23/19)
EQ 788 (11/22/19), TU 817 (11/22/19), EX 828 (11/23/19)
EQ 772 (10/29/19), TU 799 (10/29/19), EX 808 (10.29/19)
Message 6 of 10
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New Contributor

Re: So the garden begins

@ytzak I know your trying to help but sorry man your post is too much, you know only what I have said about my garden process. Do you think that I am not aware of paying off the highest APRs first? My CCs that are being used are all at 0% APR for a while and the loan I took out is at 7.99% the best I could get at the time. This isn’t my first credit rebuild, things happen and you learn a lot when that happens. I think this forum is a great platform for newbies to learn about credit but sometimes certain contributors have an arrogance to themselves and it shows on some threads that I have been reading. I appreciate your thoughts on the matter, everyone gardens different and the way I took the route is working for me.

Message 7 of 10
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Established Contributor

Re: So the garden begins


@AzCreditGuy wrote:

@ytzak I know your trying to help but sorry man your post is too much, you know only what I have said about my garden process. Do you think that I am not aware of paying off the highest APRs first? My CCs that are being used are all at 0% APR for a while and the loan I took out is at 7.99% the best I could get at the time. This isn’t my first credit rebuild, things happen and you learn a lot when that happens. I think this forum is a great platform for newbies to learn about credit but sometimes certain contributors have an arrogance to themselves and it shows on some threads that I have been reading. I appreciate your thoughts on the matter, everyone gardens different and the way I took the route is working for me.


 

If your CC's are all at "0% APR for a while", why would you throw money at them over a loan that is charging you 8% today? Especially with you being in the garden and no apps coming up.

    EQ=841        TU=834         EX=834      INQ=0/0/0     UTIL=1%        AZEO


Message 8 of 10
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New Contributor

Re: So the garden begins


@OmarR wrote:

@AzCreditGuy wrote:

@ytzak I know your trying to help but sorry man your post is too much, you know only what I have said about my garden process. Do you think that I am not aware of paying off the highest APRs first? My CCs that are being used are all at 0% APR for a while and the loan I took out is at 7.99% the best I could get at the time. This isn’t my first credit rebuild, things happen and you learn a lot when that happens. I think this forum is a great platform for newbies to learn about credit but sometimes certain contributors have an arrogance to themselves and it shows on some threads that I have been reading. I appreciate your thoughts on the matter, everyone gardens different and the way I took the route is working for me.


 

If your CC's are all at "0% APR for a while", why would you throw money at them over a loan that is charging you 8% today? Especially with you being in the garden and no apps coming up.

 

Maybe because the 0% Aprs are being used for a specific reason and those will be paid off in April and that 7.99% loan will slide into those cards for a round of 0% apr, I don’t mind paying some interest for my route im taking, it works me. Better 8% than 26%, 27% or 28%


 

Message 9 of 10
Established Contributor

Re: So the garden begins


@AzCreditGuy wrote:

@OmarR wrote:

@AzCreditGuy wrote:

@ytzak I know your trying to help but sorry man your post is too much, you know only what I have said about my garden process. Do you think that I am not aware of paying off the highest APRs first? My CCs that are being used are all at 0% APR for a while and the loan I took out is at 7.99% the best I could get at the time. This isn’t my first credit rebuild, things happen and you learn a lot when that happens. I think this forum is a great platform for newbies to learn about credit but sometimes certain contributors have an arrogance to themselves and it shows on some threads that I have been reading. I appreciate your thoughts on the matter, everyone gardens different and the way I took the route is working for me.


 

If your CC's are all at "0% APR for a while", why would you throw money at them over a loan that is charging you 8% today? Especially with you being in the garden and no apps coming up.

 

Maybe because the 0% Aprs are being used for a specific reason and those will be paid off in April and that 7.99% loan will slide into those cards for a round of 0% apr, I don’t mind paying some interest for my route im taking, it works me. Better 8% than 26%, 27% or 28%


 


I guess I am not understanding. Sorry if I am slow.

 

Your 0% APR has a set end date, whether its the current balance or the loan balance transferred over at a future date. With your plan, you are just paying more at 8% today (until April) and incurring an additional 3% (or so) transfer fee in April.

    EQ=841        TU=834         EX=834      INQ=0/0/0     UTIL=1%        AZEO


Message 10 of 10
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