Will adding a boat loan hurt my credit score?

[Anonymous]

I'm the owner of an LLC, and am considering buying a boat, but want to make sure that adding a boat loan to my credit history will not hurt my credit score.  My score is in the upper 700's now, and want to make sure it stays there in case disaster strikes my business for whatever reason.  

[Anonymous]

To assess the scoring impact, we'd need to know the following:

Do you have any open installment accounts?

    If no, do you have any closed installment accounts?

    If yes, could you list them for us, like this?

Loan 1.  Current balance = ____    Original loan amount = _____

Loan 2.  Current balance = ____    Original loan amount = _____

Loan 3.  Current balance = ____    Original loan amount = _____

etc.

Note: although loans are the most common form of installment account, there are others as well.  An auto lease, for example, is an installment account.

What is the age of your youngest account (closed or open)?  Give the age in months.  This account could be a loan, a credit card, whatever.

Where are you getting your score from?

[Anonymous]

Loan 1 - Current - 23k, Original - 33k - Youngest acct - 20 mths old

Loan 2 - Current - 96k, Original - 120k - 26 mths old

Got score from Mint.  Thanks for you help!

[Anonymous]

You list the ages of your two loans -- but is it possible you have some other account that is even younger?

We need to know the age of your youngest account, whether it is open or closed, and whether it is a credit card, loan or anything else.

BTW, do you have any credit cards?  If so, how many?

The credit score you get from Mint is not a FICO score.  That means almost no lenders or CC issuers use it to make decisions and it is largely worthless.

I will be stepping away from my PC until tomorrow, and if nobody else has helped you further I will be glad to.

[Anonymous]

I do have 3 other CCs. One gets almost no use, one I've had for over 5 years, but has never carried a balance over from month/month. It does get between 2-3k put on it each month though. The last is a CC that was opened because of a home project. Is $100 from being paid off, and has been around for approx 18 mths.

[Anonymous]

You do not mention the age of the card that gets almost no use.  I am close to being able to help you but it's crucial to know the age of your youngest account.

PS.  Remember that you need to be considering closed accounts too in this.  If you opened a card or loan four months ago and then closed it two months later, that 4-month old account would be your youngest account.

[Anonymous]

The card that gets no use is the oldest of all the cards. I had it several years before the card that I use now. The newest card, opened or closed is definitely the home project card at 18 mths.

[SouthJamaica]

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@Anonymous wrote:

Loan 1 - Current - 23k, Original - 33k - Youngest acct - 20 mths old

Loan 2 - Current - 96k, Original - 120k - 26 mths old

Got score from Mint.  Thanks for you help!

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Yes, adding a boat loan will lower your scores, in multiple ways:

1. inquiry

2. reset newest account age

3. higher installment utilization percentage

4. lower average age of accounts

[Anonymous]

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@Anonymous wrote:
The card that gets no use is the oldest of all the cards. I had it several years before the card that I use now. The newest card, opened or closed is definitely the home project card at 18 mths.

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The thing that matters is the newest account, not the newest card.  But I will assume that you don't have any loans (closed or open) younger than 18 months.

Age of Youngest Account is an important scoring factor.  The received wisdom is that you probably get the maximum benefit from it when your youngest account is > 12 months old.  By opening a new account (e.g. the boat loan) you will go from an AoYA > 12 months to zero months.

The loss to your score there might be muted or even eliminated by improving other aspects of your score, notably your CC balances.  You mention that you pay a certain card in full each month, but paying in full doesn't in itself affect your score.  If you tell us the credit limits for each of your credit cards we can make a better guess.

Another important question is whether you think you will need to apply for another credit product in the 12 months following the boat loan.  If the answer is no, then getting the boat loan is almost certainly the right thing to do.  Your AoYA will indeed fall to 0 months, but during the next 12 months you won't need your score for anything.  By the time you do need your score for something, the inquiry will have ceased having any scoring impact and your AoYA will be > 12 months again.

[Glen_M]

I think it is important to consider what kind of loan this would be classified as.  A luxury/recreation item like watercraft has a good chance of being a consumer finance loan.