1 ACCEPTED SOLUTION
Credit mix is 10% of your score. There are members here without installment loans and have over 800 scores. If you get a car loan, get what you need, not more. The reason that more than one SL will hurt you is age. New accounts hurt AAoA.
NumberCrazy wrote:
I recently had a score show up and one reason added was too few bank installment loans. It sounds straight forward, but I have a new student loan that came on and another following, but the first payment is not due until 3/2009. Is that the issue and what is the deal with not having a new or existing installment loan.
Also, will this student loan ratio be an issue like credit cards? I will have 100% utilization of two loans instead of a small ratio.
This brings me to two other questions. If I get a car loan will it be better for me to get more than I need and pay it back to reduce my ratio to the total amouont of issued debt when I go for a car loan in the future?
Will it be better to have one consolidated student loan or two, and will the consolidation ding my score when I obtain that?
I know waaay to many questions and I will stop at that even though I have many more. Thanks in advance.
Edit: Ooh sorry. Welcome to the forums.
Please read credit scoring 101. It's stickied at the top of this board and others.
Starting Score: 469Current Score: 824
Goal Score: 850
Highest Scores: EQ 850 EX 849 TU 850
Take the myFICO Fitness Challenge
The ratio doesn't work the same on installment as it does on revolving. In fact, once you make the first payment, the FICO comment of installment ratio goes away. The impact is so minimal that's it's not worth it to take out more debt than is necessary.
I thought the same thing about a year ago, when I had an installment loan. I paid it down furiously waiting for the points...nothing. My score seemed stuck where it was for months. Once I got a CC and played with the util % on it, I saw movement in the scores and it has been busy ever since.
Starting Score: 469
Current Score: 824
Goal Score: 850
Highest Scores: EQ 850 EX 849 TU 850
Take the myFICO Fitness Challenge
I thought the same thing about a year ago, when I had an installment loan. I paid it down furiously waiting for the points...nothing. My score seemed stuck where it was for months. Once I got a CC and played with the util % on it, I saw movement in the scores and it has been busy ever since.
Starting Score: 469Current Score: 824
Goal Score: 850
Highest Scores: EQ 850 EX 849 TU 850
Take the myFICO Fitness Challenge
@Anonymous wrote:If I get a car loan will it be better for me to get more than I need and pay it back to reduce my ratio to the total amount of issued debt
Personally I will never put a down payment on a new car again. I will put the down payment towards extra payments spread over the first few months.
Actually I guess I would borrow "more than I need" for any (non mortgage) installment loan and pay the extra loan proceeds back over the first few months.
CreditAble wrote:
@Junejer wrote:
The ratio doesn't work the same on installment as it does on revolving. In fact, once you make the first payment, the FICO comment of installment ratio goes away. The impact is so minimal that's it's not worth it to take out more debt than is necessary.
I thought the same thing about a year ago, when I had an installment loan. I paid it down furiously waiting for the points...nothing. My score seemed stuck where it was for months. Once I got a CC and played with the util % on it, I saw movement in the scores and it has been busy ever since.I was wondering. Did you have any prior paid off installment loans before the one to which you referred?
I had many old, closed paid installment loans before this one. This was my first foray back into the world of credit after I pulled my head out of the sand. I currently have two open installment loans outside of mortgages reporting, but I am not seeing much in the way of damage because of the util on them. Now, the revolving util is another subject.
Starting Score: 469Current Score: 824
Goal Score: 850
Highest Scores: EQ 850 EX 849 TU 850
Take the myFICO Fitness Challenge
@Junejer wrote:
I had many old, closed paid installment loans before this one. This was my first foray back into the world of credit after I pulled my head out of the sand. I currently have two open installment loans outside of mortgages reporting, but I am not seeing much in the way of damage because of the util on them. Now, the revolving util is another subject.
The way I understand what I have read about revolving verses installment loans from a risk point of view was as follows.
If a person has a thin credit file without much age and only one tradeline reporting, an installment loan would be in greater risk of default than a revolving account. If a person doesn't have enough to make a minimum payment on a revolving loan, he can simply charge an item equal to the value of the minimum payment such as a hundred dollar utility payment. He could avoid default on the revolving account by making the minimum payment with his utility funds.
If a person can't meet the monthly (minimum) payment on an installment loan he cannot obtain the funds to make a payment by adding to the existing loan balance as he could with a credit card.
It follows that all things being equal having an installment loan with 100% utility, and no prior installment history is much riskier from the creditors point of view than 100% utility on a credit card with similar lack of payment history.
The single installment tradeline would be much riskier than the revolving one until a history of payment is added to the credit file. Once a history of repayment is established in repaying installment loans, it is presumed that the consumer is far less likely of defaulting on that and future installment loans.
That would indicate that a consumers first installment loan would be much less risky with a substantial pay down from the original balance. Once the loan is paid on time for sufficient duration the consumer's risk diminishes.
It was further alleged in articles I have read that after having two installment loans with a minimum of two years payments each; the risk diminishes to negligible.
That would suggest that at some point a high balance on an installment loan would cause very little effect on a FICO score. That is why I asked about prior installment loans. At least two priors in file would account for the lack of score improvement by paying the balance down as there probably wasn't much of a util ding in the first place.
That is why I caution against blanket statements about any unimportance of installment utility. I believe that utility is most likely only less important in credit files with prior installment history.
If you have two installment loans of two years payment each in file I can totally understand the complete lack of score increase when paying down subsequent loans. If you or others have experienced no score increase upon paying down their first installment loans, I have no explanation for that phenomenon.
As for me, I totally understand the behavior of my scores. I had only one credit card in file when I obtained my first installment loan. My high balance on the installment loan was indeed probably a high risk even though I had a 720 Fico. I became a lot less risky as I paid the loan down substantially. My Fico scores reflected that.
You say that you have a mortgage reporting. If the mortgage is over two years old, that would be another reason why I would expect that you probably wouldn't have much negative impact from higher (greater than 90-95%) installment balances.
I do know for a fact that installment history does have a bearing on the rate a score rises or stays the same on current installment loans.
I pretty much now believe based upon your added input that two accounts of two years age in file pretty much makes balances of subsequent installment loans irrelevant. I cannot confirm this from my own experience since I only have my original two installs paid off and am not anticipating another for a while.
Based upon you posts I will be no longer anticipate any measurable score drop should I obtain another installment loan. Of course "no drop" means that there would be not much of an increase as I pay it off.'
@Anonymous wrote:Credit,
(1) Most lenders are requiring down payments on auto loans these days - sign of the times. It might be harder to try your trick.
(2) That said....most people on this forum have had similar experiences to Byrd and not your own.
(3) Is it possible other things on your report were causing the increases as you were paying down your principle?
(4) Maybe you were having birthdays,
(5) your average age increased,
(6) your util dropped to 9 percent or something of the sort.
(7) Often it is hard to pick out an exact cause and effect unless you use a fine tooth comb on your reports each time you get a score.
(1) Very good point, but if I were to trade a car I more than likely still wouldn't need an additional down payment. When I make a down payment I don't put down only the minimum. I pay as much as possible to minimize finance charges.
I will therefore revise my statement.
Any extra money I would normally pay as an additional down payment; would instead be used to reduce the balance after the loan is issued. I will still do that even if it might not matter anymore in my particular case.
(2) That might also be true. I am merely cautioning against making blanket statements that might not apply to a particular poster's situation. "Most" people having similar experiences is not the same as stating a premise that infers that "all" people will have the same experience.
(3) To some extent you are correct although not in the manner you suggest. I believe that it was the underlying lack of prior installment history that was largely responsible for the cause/effect in my particular situation. (see my reply Byrd above). The point I am trying to make is exactly the one you are making.
(4) There was only one other tradeline. I wasn't having birthdays every month.
(5) My average age increased by only one month each month. There certainly weren't any average age anniversaries each month. My scores however went up monthly.
(6) I am absolutely sure that didn't happen. In 2002 this forum didn't even exist. I was recording data and cross examining everything I could to determine cause and effect before anybody was having any kind of really scholarly study & discussion of the matter.
BTW: I vowed that I would never question the accuracy of the "blanket statement" of less than 9% again. Since you brought it up. I will state again that "less than 9% but greater than $0" is not the way to achieve the absolute maximum points. There is a point somewhat above "$0" that maximum points are achieved. A balance lower than that "magic threshold" lowers the score by a few points. It is a minor point, but those few extra points might be needed by some people.
You make my point again for me. Many blanket statements can be made because things work a certain way most of the time. Why can't discussions be had about the exceptions to the rules adopted by the consensus of forum members.
Notice the 9% threshold is the consensus number. It gets repeated over an over. My own research over the years generates a slightly different number. I am not mentioning that to claim that I don't agree that 9% is a good rule of thumb. I am simply saying that no one can prove absolutely that it is 9% and not 8% that is the real threshold.
Most knowledgeable people in this forum still insist on using the 9% as though it is carved in stone. Frankly I have discovered that my own percentage (that triggers negative impact) seems to be going up over time. I wouldn't mind discussing the details and why I think that is happening. It wouldn't serve much purpose however if no one really cared if the thresholds in general behave in a slightly different manner than they always believed.
(7) You are entirely correct. I have been using a fine tooth comb for almost nine years. I am entirely convinced that there are variables that pertain to the subject at hand that many here are not aware of. I am simply trying to share some perspective that might not be particularly 100% in agreement with some of the general rules of thumb adopted by many in this forum.
debitisgood,
I appreciate that you are responding in a kind considerate manner. You are giving of your time to politely and carefully voice your opposition to the statements I have made in my posts.
I must confess to you that I have a little difficulty bringing myself to post a position that might disagree with some of the "most people" wisdom. It brought me some heat before. I am still not sorry that I added my 2cents to the thread. Perhaps someone might benefit from my speaking up.
Just because things usually happen a certain way, doesn't mean that they always happen a certain way. I still feel compelled to contribute to the discussion if I feel that I have some insight to share.
Thanks for your kind considerate response. I do not mean any disrespect by answering you point by point in detail.
Edited to add:
The OP obviously has little or no installment history. He asks about the impact of multiple installment high balances utility. I am firmly convinced that he will see some meaningful Fico score increase if he gets his installment loan balances lower by any method he can. If he must take out an additional installment loan, I firmly believe that borrowing more than needed might actually help the score somewhat. That is of course, if he can discipline himself to pay that amount back immediately. He probably would have a higher Fico score than he would have had if he only borrowed what was needed.
Furthermore, his installment loans might actually be considered a greater risk of default than his high util revolving lines. Of course as Byrd alluded to the revolving utility is another matter. I would like to add that not obtaining any new installment loans at all is definitely wiser than the course the OP is considering and that I am endorsing.
