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XScottX

Car loan UTI question

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I am looking to buy a new car shortly. I never knew that installment loans (personal loans in this case) will be calculated in fico as almost like a maxed CC initially. With this being said, If I were to buy a car lets hypothetically say 35k and financed it full boat, then a month or so later, threw 20k at it, would this be a help to my score MORE than getting a 15k loan? 

 

 

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Your initial premise isn't correct.

 

The biggest hit from a new installment loan is from adding a new account.

 

Having a seasoned installment loan with a low balance relative to the initial loan amount is an asset to your credit score (especially compared to having no open installment loans reporting), however it's absolutely not required to have super-prime 800+ FICO scores.

 

PS: Buy a $20,000 car and skip the auto loan and you'll be even further ahead financially.

 

Edited by cv91915

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1 hour ago, cv91915 said:

Your initial premise isn't correct.

 

The biggest hit from a new installment loan is from adding a new account.

 

Having a seasoned installment loan with a low balance relative to the initial loan amount is an asset to your credit score (especially compared to having no open installment loans reporting), however it's absolutely not required to have super-prime 800+ FICO scores.

 

PS: Buy a $20,000 car and skip the auto loan and you'll be even further ahead financially.

I didnt mean the elimination of installment account, but the initial LV to amount owed. 

 

 

challenge is for a 20k car, im going far too many years. My current car which is/was my track car owes me nothing, however, its not exactly age appropriate or comfortable. 

 

I'll buy a car thats 2-4 yrs old that has around 30k mi, and beat the salesman without mercy to get it done RIGHT.  The last brand new car car i bought was in 05, i drove it for 7 years and took a check for 12k when i was done. I essentially drove it for 3 yrs for free, before depreciation caught up to me. 

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+1 to the above financial advice

Utilization for installment accounts is not weighted as much as revolving credit utilization, but if you are just trying to maximize your score and must spend 35k...

Owing 15k on a 35k loan would be better than owing 15k on a 15k loan. We are only talking a few points here though, maybe 10? And be sure to read the fine print on prepayment. Should be fine except for subprime loans. If you have a high interest rate or fees, it’s probably not worth financing the extra amount.

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4 minutes ago, BravoSierra said:

+1 to the above financial advice

Utilization for installment accounts is not weighted as much as revolving credit utilization, but if you are just trying to maximize your score and must spend 35k...

Owing 15k on a 35k loan would be better than owing 15k on a 15k loan. We are only talking a few points here though, maybe 10? And be sure to read the fine print on prepayment. Should be fine except for subprime loans. If you have a high interest rate or fees, it’s probably not worth financing the extra amount.

I wouldnt be down with a high interest rate car loan i'd skip it. Anything over 6% in todays world is robbery. 

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34 minutes ago, XScottX said:

I didnt mean the elimination of installment account, but the initial LV to amount owed. 

 

 

challenge is for a 20k car, im going far too many years. My current car which is/was my track car owes me nothing, however, its not exactly age appropriate or comfortable. 

 

I'll buy a car thats 2-4 yrs old that has around 30k mi, and beat the salesman without mercy to get it done RIGHT.  The last brand new car car i bought was in 05, i drove it for 7 years and took a check for 12k when i was done. I essentially drove it for 3 yrs for free, before depreciation caught up to me. 

The comment about the car was parenthetical.  The main point is that balances on installment loans don't murder FICO scores like high utilization on revolving accounts.  Your initial premise is incorrect.

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5 hours ago, cv91915 said:

The comment about the car was parenthetical.  The main point is that balances on installment loans don't murder FICO scores like high utilization on revolving accounts.  Your initial premise is incorrect.

I would agree that they don't murder your score, but they can have a significant impact as my scores just got whacked 15-20 points due to higher utilization on installment accounts.  I had 2 open car loans (well a lease and a loan).  The lease had a couple of payments left against the initial balance owed (~10% utilization) and the new loan was at ~90% utilization.  This left my overall installment utilization at ~65% (the loan was for 2.5x the total of the lease payments).  When the lease was turned back in and they updated the account to show paid, it moved my installment utilization up to ~90% now and dropped my FICOs across the board (real FICOs from MyFico).  There were no other changes to my profile, and the new car loan had already been on my reports for 8 months, so any impact from the new account/INQ would've already been factored in.  As always with anything credit related YMMV

 

That said, unless you are planning to go for a mortgage I wouldn't worry about it.  If you can finance the car for a lower rate than the return you would make on the $20K, then finance the full amount and invest the $20K.  I have seen used car rates from CUs in the mid 3's, so that should be achievable.

Edited by CTSoxFan

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1 hour ago, CTSoxFan said:

I would agree that they don't murder your score, but they can have a significant impact as my scores just got whacked 15-20 points due to higher utilization on revolving accounts.  I had 2 open car loans (well a lease and a loan).  The lease had a couple of payments left against the initial balance owed (~10% utilization) and the new loan was at ~90% utilization.  This left my overall installment utilization at ~65% (the loan was for 2.5x the total of the lease payments).  When the lease was turned back in and they updated the account to show paid, it moved my installment utilization up to ~90% now and dropped my FICOs across the board (real FICOs from MyFico).  There were no other changes to my profile, and the new car loan had already been on my reports for 8 months, so any impact from the new account/INQ would've already been factored in.  As always with anything credit related YMMV

 

That said, unless you are planning to go for a mortgage I wouldn't worry about it.  If you can finance the car for a lower rate than the return you would make on the $20K, then finance the full amount and invest the $20K.  I have seen used car rates from CUs in the mid 3's, so that should be achievable.

Did you mean to say installment there?

 

Regardless, what you just posted doesn't contradict what I said.

 

OP's premise was that new installment loans counted "almost like a maxed CC initially," due to the 100% balance-to-loan amount ratio.

 

I didn't say there wasn't an impact or even that one wouldn't notice the impact of a new car loan...  but a new $35,000 credit card reporting a balance at/near $35,000 is going to have a dramatically more pronounced negative impact compared to a new $35,000 car loan.

 

That's all I'm saying.

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1 hour ago, CTSoxFan said:

I would agree that they don't murder your score, but they can have a significant impact as my scores just got whacked 15-20 points due to higher utilization on revolving accounts.  I had 2 open car loans (well a lease and a loan).  The lease had a couple of payments left against the initial balance owed (~10% utilization) and the new loan was at ~90% utilization.  This left my overall installment utilization at ~65% (the loan was for 2.5x the total of the lease payments).  When the lease was turned back in and they updated the account to show paid, it moved my installment utilization up to ~90% now and dropped my FICOs across the board (real FICOs from MyFico).  There were no other changes to my profile, and the new car loan had already been on my reports for 8 months, so any impact from the new account/INQ would've already been factored in.  As always with anything credit related YMMV

 

That said, unless you are planning to go for a mortgage I wouldn't worry about it.  If you can finance the car for a lower rate than the return you would make on the $20K, then finance the full amount and invest the $20K.  I have seen used car rates from CUs in the mid 3's, so that should be achievable.

Considering I will buy "new/used" my rate should be at around 3.5% give or take. You're right on investing the cash and using the banks. 

 

I know a guy who has been very lucky with the casino's over the last couple of years, and by lucky i mean taking down around 100k +/- The man had 0% financing on his truck, and went and dumped cash on it to pay it off *face palm 

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39 minutes ago, XScottX said:

Considering I will buy "new/used" my rate should be at around 3.5% give or take. You're right on investing the cash and using the banks. 

 

I know a guy who has been very lucky with the casino's over the last couple of years, and by lucky i mean taking down around 100k +/- The man had 0% financing on his truck, and went and dumped cash on it to pay it off *face palm 

Kudos to the guy for paying it off.  Given the nature of his income (assuming gambling is his day job) - I would be reluctant to carry in "debt" regardless of the rate.  One bad streak and you are seeing the repo man drive off with your truck ont he back.

 

cv91915 gave you the correct response to your original question.  Installment utilization plays very little role in your credit score.  The average age of account with the new tradeline hitting will impact your score more so than the balance vs. high credit aspect.

 

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14 minutes ago, MarvBear said:

tuclassic04.jpg.2e905885a796c8b96eaf85b561102d7e.jpg

 

This is a very old screenshot, but it does support cv91915s' premise in my opinion.

Kinda interesting you posted that.  I am combing through some data right now to share with the board.  Reviewing about 40 credit files with 845+ scores to share some interesting observations/commonalities with them.

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cv... I'm disappointed in you. You said nothing about the title of this thread.

 

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2 hours ago, cv91915 said:

Did you mean to say installment there? yes, I did.  My bad.  I fixed the initial post.

 

Regardless, what you just posted doesn't contradict what I said.

 

OP's premise was that new installment loans counted "almost like a maxed CC initially," due to the 100% balance-to-loan amount ratio.

 

I didn't say there wasn't an impact or even that one wouldn't notice the impact of a new car loan...  but a new $35,000 credit card reporting a balance at/near $35,000 is going to have a dramatically more pronounced negative impact compared to a new $35,000 car loan.

 

That's all I'm saying.

I wasn't disagreeing with the premise that it would hurt less than a maxed CC, but wanted to point out that they can have a significant effect on your score, which could have been implied by your post (granted you didn't explicitly say that).

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2 hours ago, gerray said:

Kudos to the guy for paying it off.  Given the nature of his income (assuming gambling is his day job) - I would be reluctant to carry in "debt" regardless of the rate.  One bad streak and you are seeing the repo man drive off with your truck ont he back.

 

cv91915 gave you the correct response to your original question.  Installment utilization plays very little role in your credit score.  The average age of account with the new tradeline hitting will impact your score more so than the balance vs. high credit aspect.

 

See my post a few above.  Again, as with everything credit YMMV, but I would consider 15-20 points not "very little".

Edited by CTSoxFan

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4 minutes ago, CTSoxFan said:

See my post a few above.  Again, as with everything credit YMMV, but I would consider 15-20 points not "very little".

Could it be the score drop was due to the average age of your accounts shortening when the older tradeline was paid in full?  So the combination of that dropping from your average age + a new account reporting would have provided more of an explanation for the score drop than the proportion of balance to high credit on installment loans IMO.

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3 hours ago, gerray said:

Kudos to the guy for paying it off.  Given the nature of his income (assuming gambling is his day job) - I would be reluctant to carry in "debt" regardless of the rate.  One bad streak and you are seeing the repo man drive off with your truck ont he back.

 

cv91915 gave you the correct response to your original question.  Installment utilization plays very little role in your credit score.  The average age of account with the new tradeline hitting will impact your score more so than the balance vs. high credit aspect.

 

Isnt his day job. If someone wants to give me 60k at no interest, and allow me to take my cash and put it back into my biz, or some other investment, I will suffer the 1200/mon or whatever and run the wheels right off the damn truck. 

 

You do not build wealth by saving you build it by leveraging other peoples money. You cannot save your way to 1mil, you have to earn the 1mil. and the best way is using someone else's money. 

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21 minutes ago, XScottX said:

Isnt his day job. If someone wants to give me 60k at no interest, and allow me to take my cash and put it back into my biz, or some other investment, I will suffer the 1200/mon or whatever and run the wheels right off the damn truck. 

 

You do not build wealth by saving you build it by leveraging other peoples money. You cannot save your way to 1mil, you have to earn the 1mil. and the best way is using someone else's money. 

Understood (and I apologize for the numerous typos in my prior post) but I think its important to note that not everyone has the same ambition to build wealth, or the ability/willingness/tolerance to take on the risk of carrying debt in order to build wealth.  You can absolutely build wealth without using someone else's money if you invest wisely, are frugal with your spending, and lead a simple lifestyle.  I know a few millionaires that you wouldn't guess in a million years have that type of wealth due to the life they lead.  I also know a few individuals with salaries in excess of $200k per year that would be in bankruptcy if they lost their job and had to go 3 months without income.  

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Even with the missing Photobucket images, there's some good stuff in this thread from 2014.

 

My experience going from 0 installment loans reporting to 1 installment loan reporting with:

 

balance / loan amount =100%

 

was +5 on FICO 8. 

 

You can see the number of cards with balances, revolving utilization, etc., each step of the way.

 

The FICO alogrithms are complex, so you cannot necessarily correctly infer that the same would be true for your own profile.

 

 

Edited by cv91915

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17 hours ago, gerray said:

Could it be the score drop was due to the average age of your accounts shortening when the older tradeline was paid in full?  So the combination of that dropping from your average age + a new account reporting would have provided more of an explanation for the score drop than the proportion of balance to high credit on installment loans IMO.

Highly doubt it was AAoA as I have a well established profile and that account closing would barely move the needle.  Also, the new account had already been on my file for 8-9 months so any impact for a new account would've already been factored in.

 

As I said, my experience may be unique, but just want to point out to OP that the chance of a fairly significant impact is non-zero.

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