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hangloose

Using personal loan to pay itself off to build credit

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So I received an e-mail from my bank offering me a $1,200/12 month/12% APY unsecured personal loan, what's kinda crazy is that I only have a $200 secured credit card through them (as well as direct deposit into checking and savings as well)

 

It's stated that there is NO credit check, and NO early payoff penalty (I verified this as well)

 

I don't need the money, but I'd like to get a good account on my credit. The $1,200 posted to my checking account today, my thought is to immediately pay off $1,100 and make equal monthly payments on the remaining $100 (although I just made those numbers up, but ultimately pay very little in interest)

 

Any thoughts?

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if you have no installment loans on your credit, this can give you a score boost.

 

however, it's temporary, only as long as the loan is mostly paid off, but still open.

 

in the long run this will not help you (re)build your credit.

 

it's much more important to focus on removing derogs and establishing quality credit card accounts for long term score stability.

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1 hour ago, shifter said:

if you have no installment loans on your credit, this can give you a score boost.

 

however, it's temporary, only as long as the loan is mostly paid off, but still open.

 

in the long run this will not help you (re)build your credit.

 

it's much more important to focus on removing derogs and establishing quality credit card accounts for long term score stability.

I would counter this by saying it would look good from a manual underwriting perspective.  I work as a senior credit analyst and can tell you that we will often approve people for installment loans with less than ideal scores if they have had numerous paid out installment loans previously - even if they pay their revolving debt slow and/or have prior revolving charge offs.  

 

With that said, you will want to 100% confirm the bank in question is going to report the tradelines.  One of the credit unions I deal with often offers holiday loans for members at rates/amounts similar to what you are stating on here, yet they do not report the positive tradelines, and only start reporting if they result in charge off.

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Concur with the guidance to ensure the loan will actually report.  If it does not report, then it accomplishes little if there is nothing to apply the funds towards.  The APR leaves much to be desired.  The notion of getting it simply to pay a big chunk right away is NOT a good way to endear yourself to the lender you seem to do business with on a regular basis.  The institutions to screw over that way are NOT the ones local to you and that you conduct most of your personal banking with AND who could be beneficial in the future borrowing needs you might have. 

 

Quite frankly, if you have no other balances to be paid at this time, then you may want to take the grand and add it to the secured card to increase the limit (which, provided THAT card is reporting, helps with other borrowing efforts by showing a larger line).  You NEED to work on building lines that are not toy cards which do not even have enough of a limit to put a nice dinner for two on it...

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On 11/7/2019 at 3:19 PM, hangloose said:

So I received an e-mail from my bank offering me a $1,200/12 month/12% APY unsecured personal loan, what's kinda crazy is that I only have a $200 secured credit card through them (as well as direct deposit into checking and savings as well)

 

It's stated that there is NO credit check, and NO early payoff penalty (I verified this as well)

 

I don't need the money, but I'd like to get a good account on my credit. The $1,200 posted to my checking account today, my thought is to immediately pay off $1,100 and make equal monthly payments on the remaining $100 (although I just made those numbers up, but ultimately pay very little in interest)

 

Any thoughts?

 

Who is the lender?

 

I agree with Hegemony and Shifter that efforts are best spent on other endeavors.  But for now, you already have the loan it seems.

 

If your idea is to pay off the loan and get the installment loan hack score boost to ride for a while, there are a few things to think about.  

 

1.  Some lenders do not count extra payments as credit on future monthly payments.  For example, if your payment is $100 per month and you pay $1,000 thinking you will have no payment for the next ten months, you may find your lender doesn't operate that way and you still have to make the next monthly $100 payment.  Your installment loan hack score boost will probably die before it even begins.

 

2.  Some lenders forgive low balances.  I paid off a large loan years in advance leaving a $100 balance that I thought would keep the loan reporting as open for years.  Come to find out, USA writes off balances of $100 or less so the loan was closed on me and my score boost died an early death.

 

 

 

 

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Hey @PotO, it’s actually an installment loan through my local credit union. They offered it with no credit check, $1,200/12 month/12% APY. I did end up getting it. 
 

it sounds like at best it won’t hurt me to have it (save for spending a little extra in interest) I’m hoping that perhaps this will put me in good graces with my CU and might help me get a credit card with them in the future

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17 minutes ago, hangloose said:

Hey @PotO, it’s actually an installment loan through my local credit union. They offered it with no credit check, $1,200/12 month/12% APY. I did end up getting it. 
 

it sounds like at best it won’t hurt me to have it (save for spending a little extra in interest) I’m hoping that perhaps this will put me in good graces with my CU and might help me get a credit card with them in the future

 

$12 a month isn't that bad.  

 

I'd follow Hegemony's advice and use the cash to get a couple of secured cards.  Those will help you far more in the long run.  

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2 hours ago, hangloose said:

That is a good idea! Also, it shows my payment as only $106/month.. hmm..

Since its APY, that's accurate.  1/12th of the year your balance is $1.2k so you are paying interest on that.  1/12 of the year your balance is $100 so if you do the math your average balance over the course of the year is $600, which at a 12% APY would be $72 in interest over the course of the year.

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