Will paying off my personal loan tank my credit mix?

[Anonymous]

And if so, should I start a self lender deal when the loan runs out or what?

I have 4 credit cards and a personal loan right now as my only credit products. I got the loan in 8/2017 but it’s at like 20.99% interest so I want to pay it off early since I’ve established over a year of perfect payment history. It was a $2800 loan but had a $300 origination fee so I ended up with $2500 and I still owe like $1600 or so on it. 

Quite frankly I am tired of paying $90 a month just to boost my score but I don’t want to pay it off early if it’s going to really hurt my score unless something like the self lender loan can replace it. $25 for 24 months when I’m going to end up actually getting the money back is worth it but right now I’m just throwing money away when I have the ability to knock it out quickly. 

I am really only planning on going for a CLI on my NFCU cashRewards card and I’m running AZEO method (didn’t even realize I was doing that until I read about it this evening actually) but other than NFCU and this loan I’m looking to enter the garden soon so any advice is appreciated. 

I am am hoping to come out when my Chapter 7 falls off 8/2020 with the most optimal score I can have with very low income (18k). I have managed to repair quite a bit considering that I reaffirmed my car in the bankruptcy just to have it repo’d in 2012 and I defaulted on student loans that are now paid. My lowest FICO is TU 08 at 647 while EQ 09 is 680 and EX 08 is 670 (although I think EX is broken because I got an 18 point boost to 670 in May and my score hasn’t changed a point either way since and it definitely should have lost some points for inquiries and adding NFCU in September) so I am not doing bad but I made some missteps this year already like closing a card that would have been 2 years old this year and apping for and then canceling an Amex which ended up reporting for two months and dropping my AAoA even more so I’m trying not to make anymore missteps. 

Unfortunately I have an obsessive personality so I have been running scenarios in my head for literally months now. 

[Anonymous]

Since you are a member of Navy Fed, they have a nice product that works well with the Share Secured Loan Technique:

https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Sec...

The product is their Share Secured Loan.  Any number of people have written about their success implementing the SSL Technique at Navy.

You just need to deposit $3100 in your savings account, which will be the security on the loan.  I think what I have heard is that loan amounts greater than $3001 will get you a 60 month term.

As the SSLT thread explains, you will then pay off most of the loan at month 1 and keep it open for the full 60 months.  Once you have the SSL in place I would pay off the costly loan you have currently.

Be sure not to discuss the technique with the customer service reps.  If you want step by step advice I am sure someone here will be glad to give that to you.

[Anonymous]

Thank you for the response. Unfortunately this isn’t an option for me because I am disabled and part of my disability involves a Medicaid waiver - I can’t have cash assets over $2000 at any given time so it’s both impossible for me to save $3100 and impossible for me to keep my Medicaid waiver which I need for specific services that Medicare won’t cover if I have a savings account that has $3100 in it whether I can access it or not. 

Something like gaming that loan seems like a way to upset Navy Federal and I would rather not do anything that could cause problems for me there. 

I did actually apply for them to refinance my loan but I was denied due to lack of experience as a Navy customer so I may look at that option again. 

Its really frustrating that FICO scoring dings you so hard for not having an active installment loan. There are plenty of people who have no need for loans such as myself - I’m home bound so I have no need for a car and I don’t make enough to ever even dream about owning a home so I am going to have to perpetually churn personal loans from the looks of it, the expense of which will add up. 

I wouldn’t care so much about getting my score as high as I can if my disability was permanent but I have strong expectations to go beyond what is expected with my condition and be able to return to work somewhere in 2020, 2021 at the latest, so this 18k income won’t be my limit. I’m only 34, I have a lot of time left and I want the best foundation now. 

[Anonymous]

You could implement the SSL Technique with a loan that has a shorter term.  My guess is that $1900 would be sufficient to get you a 24 month loan, or possibly even a 36 month loan.

[Anonymous]

Am I missing something though? If I have to put the money into my savings as a security deposit, I still have to come up with the cash to make the payments. 

$2100 is the minimum to get 36 months, I worked with a rep over the phone when I wanted to refinance my personal loan and she bumped it to $2100 when I asked for 36 months and put that I would be using the leftover for a down payment on a new iPhone. She was actually really quite helpful - I told her my intent was to get a lower interest loan than I currently had and that I only really keep a personal loan for the credit benefits and not because I need one and she tweaked everything perfectly. Unfortunately since I am a new member it was declined and I opted not to send it to recon. 

I have about $500 a month in free cash after I set aside bills (including the loan and any credit obligations and rent) and a larger than I actually need grocery budget so it’s not like I’m struggling at all - in fact, I live quite well for my income - the loan doesn’t really hurt me in terms of ability to pay, it’s just the horrible interest that Best Egg charges that I can’t stomach. 

But I also don’t want to muddy up the waters and end up in a situation that puts my Medicaid waiver in jeopardy - so maybe I should just leave well enough alone and keep paying this loan and just eat the interest cost until September when I’ll have been a Navy member for a year and will have established enough of a history with them for them to give me a new loan. 

Credit can be incredibly frustrating to understand and even more frustrating to micromanage and I wish I would have started my rebuild sooner. Waiting until I was 3 1/2 years into my bankruptcy put me at a disadvantage I feel. 

[Anonymous]

You can do $250 SSL that will get you a 6 month SSL. Even if you did the 3000 as suggested above they cut you a check immediately. Then you turn around pay the loan down under 8.9%. That money is released back to you within about 5 business days. You won’t have money tied up for long.

I did the 6 month option because I thought I might buy a car soon. You only need 1 open installment. I know this sounds confusing but it’s actually this easy. Don’t over analyze.

[RonM21]

Op with this SSL technique, it seems like once you break it all down, you still have options that will accommodate your situation. On the other hand, you certainly do not have to do anything. It's all in how you want to handle your profile.

[Anonymous]

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@Anonymous wrote:
There are plenty of people who have no need for loans such as myself - I’m home bound so I have no need for a car and I don’t make enough to ever even dream about owning a home so I am going to have to perpetually churn personal loans from the looks of it, the expense of which will add up.

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If that's really the case here, I see no need for you to ever have a SSL or any other type of loan for that matter.  The purpose of these types of loans is to give people a 25-30 point boost to their credit scores.  The reason they want that boost is so that they're in a better place for things like applying for [real] loans that they need.  My perhaps different perspective on this subject is who cares about the 25-30 points in your case... just roll with no open installment loan and let your scores be what they are.  Over time as you continue to make on-time payments, keep utilization low and your file ages (negative items fall off, etc) your score without an open loan will easily exceed whatever you're at now with an open installment loan.

[Anonymous]

Nice comments by everyone.

BBS is right that you don't have to implement the SSLT anytime soon.  As he says, people do that because they need a 30-35 point boost for some particular upcoming credit need.  A classic example is buying a car.  You get the boost so that you will get the best interest rate on the car.

My own personal suggestion is the following:

(1)  Implement AZEO with a small positive balance on the remaining card.

(2)  Pay the expensive loan down but not off.  This will sharply lower the amount of interest you are paying each month, for the simple reason that most of the principal has been paid off.  If you want an exact number I would pay it down to $190. 

(3)  You may find that, after the big paydown, the loan handler will push the due date for the next payment many months into the future.  Great if that happens!  But even if it doesn't, you will have lowered the balance to under 8% of the original loan amount and you will be realizing the full benefit of the SSLT.  With AZEO plus the mostly paid off loan, your score will be as high as it can be.  Furthermore, even if the loan handler forces you to keep making payments, your loan will stay open for three more months.

(4)  Check your three FICO 8 scores at this point with Credit Check Total.  It will cost you $1.

(5)  At this juncture you can decide whether you want another credit product.  The one that comes to my mind is one more credit card.  You have four cards now and that is fine.  But if you want one more, here is the time to get it -- before the loan is paid off and you lose the 30-35 point bonus.

If you are certain that you will have no desire for a 5th card, then you can simplify the advice to: pay off the loan at your earliest convenience.

As the other commenters have mentioned, you could always implement the SSLT in a couple years if you like -- when you no longer have the restrictions on your bank account.  (Though as they point out, a 24-month SSL at Navy is within your reach now.)

[Anonymous]

PS.  A slight correction for any visitors reading this thread.  Our OP asks in his first post and in the subject line whether the loan closing will tank his credit mix.  Paying off a loan does not affect his credit mix.  The closed loan still gives him a mix of credit.  Where the closure affects the score is in a factor we call "Installment Utilization" -- that has to do with the ratio of the balance to the original loan amount.  That scoring factor does not reside in the Credit Mix section of the FICO 8 algorithm but in the larger Amounts Owed section.