Take Out Installment Loan to Boost Credit Score?

[FL_Flyer]

TL;DR: If you only have a couple of revolving accounts and need to bump up your score, is taking out an installment loan a good thing to add to your file to increase score quick?

Hi, I am trying to do everything I can to be (better)qualified for a home loan. Long story short, scores are TU660, EQ644, EX596 (fico), so I need every point I can get. Anyway, I had a meeting with a credit counselor (if that's the right term) and he did give me some advice. Now I have no reason to doubt his advice, and he seemed knowledgeable and had a nice office in an office building, but I was having what you could call a tough day and some things didn't  "sink in" and there's some things I forgot to ask. 

Now that you are up to speed, why am I bothering you.....?

Well, he suggested that I open an installment account loan to boost my score. At the moment I only have two revolving accounts. Between that and a couple of other things He said it might raise it upwards of 50 points!? Cool! But I have some questions about this.. It's for $1,000, 24 months @ $44.05 ($1,057)

I'm sure he would help me out with this if I contacted him, but I'm at work and cannot call him directly, it's on my mind and I'm pressed for time...

If I did proceed with this Installment Loan process- Wouldn't that decrease the Average Age of Accounts? In other words,will it initially hurt my score because it is a new account? Or would the fact that I'm adding this "type" of account to my revolving accounts outweigh that? Would it look weird to a loan officer that I took out this measly loan and applied for a mortgage the following month? I need to apply now, lease is up, baby on the way, finances in good order, but unfortunately not sparkling credit. 

Is it really this easy to bump my score up substantially by doing this? Like some secret loophole.. Or will it initially have the opposite effect? It probably needs to stay on there for a few months before it helps more than hurts is my best guess. 

Like I said the man was really helpful and he didn't push me out the door but I just forgot to ask this. Thanks if you can offer any advice until I can make contact with him.

[FL_Flyer]

If you're wondering what the "other things" he suggested to raise score, basically to settle and PFD two small emergency room visits @ $190 each. Aside from that all I have is a 3.5 yr old cable bill- not much I can do about... and an old old old secured card from 6.5 yrs ago- he said don't touch.

Annnd maybe you don't need this but here are some bullet points from that info sheet about the installment loan:

• Bank pledges the collateral.
• Basically that there is no circumstance that you (I) would not be approved.
• Automatic loan payments from a checking or savings with the bank.
• No prepayment penalties.
• Rate of loan: Deposit Rate +5%
• Term of loan must match term of CD being established as collateral
• Interest method: Simple Interest
• Repayment: Principal and interest

He suggested to me $1,000, 24 months @ $44.05 ($1,057)

[guiness56]

When are you looking for a mortgage?  Any time soon?  It is highly recommended not to apply for anything within 6 months of doing so.

You really don't need an installment loan to boost your credit.  It is only 10% of your credit score for having different types of credit.

First, you would get a HP from the creditor, then when the TL reported you could actually lose points and not gain them.  IMO, it isn't worth the risk.

I agree with trying to PFD the ER collections.  You didn't mention how old they are.  Or at least I didn't see it.

[FL_Flyer]

Thanks very much. The ER colelctions are from 6.5 and 6 years ago. old. They are for $190 each.

Is it true that the older a collection is the less "weight" it has on your score? In other words, even if they are removed will it NOT improve my score very much because they are not doing that much "damage" since they are so old? 

If PFD'ing/removing them will help I think I will try and settle that quick and see what happens with my score. I really want to apply by the end of Dec. I am concerned about the implementation of the Dodd-Frank Act which I think is supposed to be in effect as of 2014. So, I wanted to try for a pre-approval before then. 

I think my plan of action will be to try and handle the two old medical bills (if I can expect a score increase), see where that puts me, and apply. If I can get an approval that is satisfactory then I'll go from there. 

[guiness56]

YMMV on what you will or will not get in points with the removal.  I would be more concerned if the account has not updated in a long time.  Anything you do now could cause them to update and really drop your score.

Not sure what you mean about the Dodd-Frank Act.  It was implemented a few years ago.

[FL_Flyer]

Experian has it listed as "Last Reported: 09/2013"

And speaking of that, ya know I probably should have said this earlier, but Experian is the only one that these collections are on. TU and EQ have no mention of them. I appealed them online with TU and EQ and they were removed, just not on Experian. But, yeah as far as EX, it looks like they update regularly still. 

What I meant by DFA, see these articles...

http://homes.yahoo.com/news/the-impact-of-dodd-frank-191118507.html

http://abclocal.go.com/ktrk/story?section=news/consumer&id=9298990

[Revelate]

Generally speaking, and I agree with Guiness's advice regarding new accounts and chasing a mortgage; however, if you have zero installment loans on your report you will likely be break-even or outright positive by adding one.  Also if you just aren't qualified now anyway, it's either try to take the shot or wait, and if you're stuck waiting, that boosts up the value of the new installment tradeline.  As is you're stuck a month or two waiting for it to report potentially.

I really doubt you're going to get 50 points as I consider that to be pure fancy nearly regardless of credit report, but I got 14 personally (have to double-check that but it was double-digits); however, my file was pretty new without a lot of positive information in it (and plenty of negative) so yours may not the same value: mine was on a legit mortgage score though.  That said, 10% for mix-of-credit is non-trivial points left on the table though when you're basically missing an entire scoreable category on your credit report.

If you're 3 months out to the mortgage and short by some points, I'd absolutely do it; however, if you're 1 month out, that's a lot tougher decision honestly.  If you have several inquiries on your report and your revolving history is mixed or short (which your scores seem to somewhat suggest) I'd do it as statistically your damage will be less than your gain, but it's not guarunteed.

[Relentless]

I got a 2k secured loan with my bank at the start of my credit rebuilding process. I think the most it did was help me get approved for unsecured CC's after I had paid it for 4-6 months. It didn't little as far as my credit score. I just paid it off today, a year and half early and from everything I;ve read, and by playing with the similators it'll have little impact on my score when reported as paid.