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I got a secured loan for 10k 3.10 % 24 months. How long before I should pay it off?


Help1285
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I got a secured loan for 10k @ a 3.10 interest rate. How long should I leave it open before I pay it off? 1 year?

 Also does it help your Fico score once the account closes? Should I expect a Fico increase once it reports? My Ficos are 650 or so across the board.  I did this so I can build my credit.

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Assuming that you have no other installment reporting (open or closed), I would anticipate a 10-20 point drop upon opening, recovery to your current score in 3 to 6 mo time, and approximately a 20 pt boost to your current score at the end of 1 year.  (A lot of informed guesswork involved here.)

 

I would recommend repayment no earlier than 1 year.  It may be advisable to keep it open as long as it's reasonably convenient for you to do so.

 

I was originally of the impression that it was merely sufficient to have an installment on your report, open or closed, to benefit from the related FICO score boost.  However, it's recently been made clear that where a mortgage tradeline is concerned, payoff of the account is generally accompanied by an approx 15 pt FICO decline (FICO 8).

 

I therefore expect that there may be something similar at play with non-mortgage installment loans, but have no knowledge one way or another.  So, I can only suggest that it may be worthwhile to extend repayment as long as possible.

 

Something else to consider is possible partial prepayment of the loan.  There are pros and cons to this:

 

The loan with a reduced balance outstanding will still fully contribute to your FICO score.  Further, with a smaller portion of the loan outstanding, you'll get n enhanced FICO boost.  And, of course, with a smaller balance outstanding, you'll incur less interest expense.

 

Offsetting these benefits is that unless you can recast the loan (reset the monthly payment so that the loan will still be repaid over the same period), you'll find yourself with a paid in full loan on your credit report much soon than otherwise.  If the speculation that an open installment secures the greatest FICO benefit, you may need to cast around for a replacement loan to continue to enjoy the full boost to your score.

 

< Again, I'll stress take this insight with a considerable grain of salt.  It's based on inferences gleaned about credit scoring over the last 15-20 years and on very limited hard data >

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Thank you for your input.  I have 2 old paid off installment loans for 1k each. They both have a 30 day late on it and closed. I’ll keep you update as to what happens with my score once it reports.  The total interest is only about $300 through then 24 month term.  Do you think it’s a good idea to pay 3k (or how much ??)  the first month or so for partial repayment effect ?

Edited by Help1285
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13 hours ago, Help1285 said:

I got a secured loan for 10k @ a 3.10 interest rate. How long should I leave it open before I pay it off? 1 year?

 Also does it help your Fico score once the account closes? Should I expect a Fico increase once it reports? My Ficos are 650 or so across the board.  I did this so I can build my credit.

There is no need to pay interest in order to "build credit." If you are going to spend $300 on interest you might as well get a garbage high fee rebuilder card with an annual fee since installment loans hardly help at all. At least then you get a revolving tradeline which matters a helcl of a lot more to improving FICO. FWIW I have no open installment loan and scores over 800.

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2 hours ago, hegemony said:

 FWIW I have no open installment loan and scores over 800.

 

And, it would be "redundant" for you to open an installment loan for the sake of a further boost, since any added portion of a FICO 8 score above 760 is pretty much "unnecessary padding".

 

But for someone rebuilding or simply waiting out some adverse reporting, it's a potential score boost of up to 20 pts in a situation where "every little bit helps".

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FWIW, a large measure of the "informed guesswork" from which I suggest a 20 point score benefit from having an open installment reporting for a year is use of the "FICO Score Estimator" at myFICO.com.  Specifying variables of a short credit history, 4 open revolvers, 0 open installments gave a baseline of about 650, with a 20 boost when I added a one-year old installment.

 

Obviously your variables differ moderately.  Not sure how those differences play out "IRL" on your FICO score, but it's worthwhile to take the estimator out for a spin.  With a paid report, you can also play a limited number of incremental credit scenarios against your current score to see likely impact

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I just tried that it showed that I would lose 25 points off Equifax and five points off the other two credit reports but I don’t understand why so much just off the Equifax report. 
 

I took a screenshot I just don’t know which image URL I should insert I try two and they don’t work. 

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I have 5 charge offs that are due to fall off 12/25    They are all paid.  I have no collection accounts. 
These are the cards I have now reporting :

Cap One secured $1000 (maximum limit)

Saks $750

Kohls $700

Amex Optima $800 (hasn’t reported)

Amazon secured $100 (might just close this lol)

 About 3k in credit. All paid. 
 

Should I get a secured card from my credit union for 5k ? I can’t seem to get larger limits. Wouldn’t that help ?

 

 

 

 

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1 hour ago, Help1285 said:

I have 5 charge offs that are due to fall off 12/25    They are all paid.  I have no collection accounts. 
These are the cards I have now reporting :

Cap One secured $1000 (maximum limit)

Saks $750

Kohls $700

Amex Optima $800 (hasn’t reported)

Amazon secured $100 (might just close this lol)

 About 3k in credit. All paid. 
 

Should I get a secured card from my credit union for 5k ? I can’t seem to get larger limits. Wouldn’t that help ?

 

 

 

 

IMHO working on higher limits on revolvers is worth more effort (as well as getting cards that correspond to your normal spending patterns...) spending money on interest isn't...

 

Another secured card may be a better long-run choice. IIRC SDFCU offers them up to 25k.

 

 

 

 

Edited by hegemony
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2 hours ago, Help1285 said:

I just tried that it showed that I would lose 25 points off Equifax and five points off the other two credit reports but I don’t understand why so much just off the Equifax report. 
 

I took a screenshot I just don’t know which image URL I should insert I try two and they don’t work. 

 

Up front, you're taking hits both for an inquiry (which may or may not hit that CRA) and a new account.  Other recent inquiry activity on a given CRA influences just how much a new inquiry costs you with the same CRA.  The impact of the new account should be uniform across all 3 RA's.

 

Again, what I stress is to also look where you will be once the loan has a year of history under it's belt.  That you can achieve by revising your "input" data to include having an open installment on file with a year of history.  (I can't remember if age of that account is an input or not).  This should give you an idea of the potential pickup near-term from the installment.  (Bear in mind, in addition to that pickup, one year down the road you'll also pick up the benefit of your entire history aging a year.)

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2 hours ago, Help1285 said:

I just tried that it showed that I would lose 25 points off Equifax and five points off the other two credit reports but I don’t understand why so much just off the Equifax report. 
 

I took a screenshot I just don’t know which image URL I should insert I try two and they don’t work. 

 

So, re screenshots:  Since you're referring to a URL, I assume that you've downloaded the screenshot to your hard drive and then uploaded it to a hosting website.

 

Just in case you continue to have difficulty with the posting of your image, I'll briefly detail how I do it ...

 

I have a free account on IMGUR.com where I store my images.  Once the image is uploaded to IMGUR.com, switch to the "Image" page, click on the thumbnail representation and a set of links will appear on the right side of your monitor.  Look for the one labelled "Direct Link" and click on the Copy button beside it.  Return to your CB post and paste.

 

I've found this to be a surefire method by which to post images on CB and elsewhere.  It has the added benefit that the images are now archived in a handy place should you want to refer to them again.

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