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

[Help1285]

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.

[hdporter]

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 >

[Help1285]

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 May 14, 2022 by Help1285

[MarvBear]

I personally believe that an installment loan that reports for at least a 3-year period will give you a maximum benefit for a well-paid tradeline.  That has been my observation from years of analyzing credit files.

[hegemony]

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.

[hdporter]

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".

[MarvBear]

And installment loans don't do a heck of a lot for credit scores.  Certainly not like revolving lines do.

[Help1285]

I have 6 open cc accounts limits 1000 and under. I’m just rebuilding. I just wanted an installment loan to create some payment history paying installment to help under a manual review if I ever wanted to lease or finance a car. It’s not just the small Fico boost. 

[hdporter]

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

[Help1285]

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. 

[Help1285]

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 ?

 

 

 

 

[hegemony]

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 May 14, 2022 by hegemony

[hdporter]

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.)

[hdporter]

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.

[Help1285]

This is what the simulated score is if I add a personal loan  @hdporter

[hegemony]

I thought the point was to get a thicker file and not fret about near-term fluctuations? If so, then don't worry about the impact of new accounts. Worry about what your scores will be in 6 to 12 months.

[PotO]

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.

No idea what @HDPorter is even talking about.

When you open a new account you may get a hit of a few points for the inquiry, but nowhere near 10 - 20 points unless it drops your AAoA below a certain threshold.

On a 24-month installment loan, there's no way that tradeline will give you a 20-point boost after a year.

I can't believe people here on CD have forgotten the details of how The Installment Loan Hack works.

After you pay the loan down to about 25% - 30% of the original value, on a clean report you should see an approximately 30-point boost. All things being equal, you will keep those points until you have paid off the loan. Upon paying it off you will lose all but a few of that increase.

What you should do to increase your score and, more importantly, to save on wasting money on interest, is pay off all but $200 of that loan as soon as it is reporting to the credit bureaus. Then you ride it out for 23 months when your final payment will be due.

Whatever you do, do not pay it off below $100 or so. I made the mistake once of paying a loan off to $50 and then USAA promptly forgave the balance and closed the loan.

Another thing to be careful about BEFORE even applying for a loan from a particular bank is their pre-payment policy. Most will allow you to pre-pay and the pre-payment amount counts towards future monthly payments. Some, however, will not. Avoid those.


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[hdporter]

1 hour ago, PotO said:

No idea what @HDPorter is even talking about.

When you open a new account you may get a hit of a few points for the inquiry, but nowhere near 10 - 20 points unless it drops your AAoA below a certain threshold.

 

The assumption of a short credit history would be consistent with a significant AAoA hit from a new account.  And, I'm only relaying what the FICO score estimator spits out, under given assumptions.  I have no problem if anyone wants to shoot those numbers down.

[PotO]

 
The assumption of a short credit history would be consistent with a significant AAoA hit from a new account.  And, I'm only relaying what the FICO score estimator spits out, under given assumptions.  I have no problem if anyone wants to shoot those numbers down.

The problem with the FICO Score Estimator is that it is generally wrong using their ASSumptions.

Depending on the precise contents of their credit reports, a new account could have minimal effect on their AAoA. I just added several and my AAoA dropped from something like 8.5 to 8.49999. Should I be expecting a 30-point hit now?


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[Herloss]

Slightly off topic and if the OP is still reading.....

 

Did you open the Saks and American Express Optima accounts while you have negative information reporting? Charge-offs, etc?

 

Curious as it seems like Amex would be the one to hesitate to open new accounts with even paid charge-offs reporting. Then again, I don't keep that current with what they're doing as of late.

 

Again, merely curious. 

 

HL

[Help1285]

Yes at the time I did have a couple paid charge offs reporting. Saks just doubled my credit limit and so did Kohl’s they’re both capital one 1500 and 1700. 
The American Express optima is by invite only it’s a second chance card. It’s probationary basically for 12 months then I can apply for another American Express and apply for a credit limit increase. You have to have an old unpaid debt and then you pay in full and that’s when you are issued the American Express optima card 

[Herloss]

I see. Thank you for replying!!!

[Help1285]

Glad I was able to help

 

Saks and Kohls are very easy to get even if you’re in the 500s and bombed them in the past btw. 

[Herloss]

I have had both for years. Don't need them I keep for their age and occasionally a discount. Think both originated in the mid 1990's.....