secured loan?

[Anonymous]

quick background:

26 yrs old

bought first condo in April.  Credit score at the time was 733.

since then, got each of my 4 credit cards either paid off or brought down within the utilization range of 1-9%.  currently I have 3 cards with balances.

last week i hit a bump in the road... my HVAC went out.  I have to replace the entire system, to the tune of $3500.  I am strapped for cash and my only option to pay for it seems to be to take out a secured loan on my car.  (no, there's no homeowner's warranty or anything like that, for those who are wondering).  My car is worth about $9500 with no liens or loans against it at present.  I went to the bank and they approved me for a $5000 (that's the minimum they'll do) loan at 9% for 42 months.  Then this evening, my grandfather offered to loan me the money so i don't have to pay all that interest.

So, here's my question... I have one card with a slightly high balance and a high interest rate of like 13%.  all of my other cards have rates of a little above 9% as well.  Would it hurt/help my credit score to take the $5000 loan and use the funds to essentially pay off my high interest credit card and consolidate into a fixed rate on a secured loan?  I wouldn't need the entire $5000.  We are only talking about maybe $2400 worth of debt, so I could take the remaining $2600 and immediately pay down the secured loan with no penalty.

I know that this loan would increase my total debt, but it would also increase the variety of credit on my credit report, right?  I don't need to apply for a loan or other credit any time soon, so my credit score also has time to adjust as well.  I just thought it might be good to have an easy way to transfer my debt into one secured instrument  at a fixed rate, while using the loan from the relative to pay for the HVAC.

Thoughts?

Thanks,

Adam

[RobertEG]

In my opinion, take the 0% loan from grandpa.

If you open an installment loan with the bank, two things will hit.  First, it will lower your average age of accounts in FICO scoring, which has just as much negative impact as any short term gain you will get from adding to mix of credit.  And when you pay off the installment loan, any advantage of mix of credit will go away.

Meanwhile, on a new installment loan of $5,000 at 9% APR, in the first month allone, you will be paying approx $37 just in interest.

If you are not going to be appling for new credit soon, dont worry about your % util on the existing CCs.  % util has no historical memory.  The time for real concern on their % util is a month or two before appling for new credit.  Until then, FICO is just a mind game.