I noticed something on my reports and wanted to see if others have experienced the same. It seems that credit scoring seems to reward people for having a number of different kinds of loans. Fair Isaac has said that having a good "mix" helps your score and that you probably shouldn't open accounts you don't intend to use. This to me says in neon lights many different kinds will help your score. Has opening different kinds of accounts helped anyone out? For example when you got your first car loan did your ficos go up? Or did your scores go up when you got your first installment loan? My Fico jumped 40 points or so when a 10k cd secured loan showed up(I hadn't even paid a dime on it). So much for the theory that new accounts always hurt your score!
i agree that they put way too much importance on credit cards. Some one who has a twenty year perfect payment history, but has a high credit to limit ratio still has horrible scores. I personally think the program they use for scores is horribly written and a loan processor could more easily distinguish a good borrower from a bad one.
It's true that the "right credit mix" will optimize your score. However, keep these points in mind: More damaging to your FICO score than the lack of a good credit mix is the presence of "new credit" -- no matter how good the mix. So, for example, if you look over your credit mix and decide that you're missing a department store charge card and a gas card, and you suddenly apply and get them, YOUR SCORE MAY ACTUALLY DROP. (Two reasons for that: 1) The presence of two more inquiries, and 2) the new credit.) LOL! FICO likes you best if you have a good credit mix, all the components of which are at least a year old. If your credit is many years old, you'll be even more handsomely rewarded scorewise. Also... If you have too many bank cards for FICO's liking (let's say you have six MasterCards/VISAs, for example), and you close a few of them you may not see your score rise! Why? Because RECENTLY CLOSED CREDIT still counts in the mix. Those accounts will need to be closed for at least a year before you begin seeing score improvements based upon mix. Also... I can't remember who said this before... was it Marie? (I just can't remember...) ... but, if you intend on closing an account you just opened a few months ago, don't. Wait until that account ages to at least one year before closing it. If not, that stinking account will always just have a few months history on it, even closed, and that will count against your scores for the life of the tradeline. (This last point was researched by somebody else, but I remember it was from someone else I trust. For what that's worth, lol! Do the research.) Doc
That is right. However, the effect of the 2 inq. will be negligible after 6 months and longer term, the presence of a dept. store card and gas card will increase the score, and if you already have a high score, it might be the difference in getting the rock bottom rate vs the "just above" rock bottom APR's for loans. I do agree that FICO emphasizes too much on credit-cards though.
I almost missed this... You may have just contributed to the wealth of knowledge here, lol... The presence of a CD-secured loan says a few things about you -- you have financial assets, a demonstrated financial planning track record, and a creditor's approval on that basis. If one could lift their score 40 points by acquiring a CD-secured loan, that might be a good thing to know for someone [with assets] who is about to seek a mortgage and needs a score boost! Doc
I have a measly $2000.00 I can use as a secured loan. I wonder if the amount of the loan is a factor. I can use a bump but I can't spare more than $2000.00 at the moment. PS I like the fact that neither a hard or soft inquiry is involved.
PS I plan to go to Bank of America to do this. What type of institution did you create our cd secured loan? I'm HOPING that BoA does'nt do an an inquiry. I'll ask before leaping, of course.
I've used USAA and Golden 1 credit union here in CA. Both with good results. Neither charge a prepayment penalty so you can actually pay off the loan in a week and pay almost nothing in fees. Neither do inquiries. USAA requires a minimum of $4000 though. Surprisingly most banks run credit checks on cd secured loans! I'm still not quite sure if the reason for the bump in score was because of the large sum involved or because it showed up as an installment loan (not as secured) or maybe both. I had many $1000 secured loans before, but no installment loans. I tend to think it is because my credit mix was improved. I've read somewhere that your 'mix' was worth 10% of your score. Which raises an even more tantalizing proposition--maybe if you're going to apply for a home loan and don't have any installment loans, getting one could actually improve your score(and help you with your down payment Incidently that rule of thumb about new accounts harming your score doesn't seem to fly in another case. I received a new citi card and before it reported consolidated all of my citicards onto it for a 30k limit. The day it reported my score went up something like 8 points(I base this on using credit watch and pull it almost everyday). I believe fico also likes to see credit cards with high limits experian suggested this on their site one time.
Thanks. Now I just have to figure out if risking a hard inquiry is worth taking the CD secured loan. Your info was particularly helpful because I live in CA as well. Thanks
I'm wondering does a CD-secured loan report as "CD-secured" or just secured loan? A few personal examples: DH and I bought a car together, I had had several "installment loans" always paid on time, hubby had only had one 5 times 30 days late. When the account started to report my score went down his went up (only 10 or so points). Our apartment complex reports to our CR's beginning balance was like $9323, well now we only owe $1600 (just updated first time since we started renting here last April), you would think with it looking like we JUST paid almost $8000 our scores would drastically change, ME: +2 Hubby +5. RNG baby, RNG!
Through my research I have learned that all 3 CRAs, but especially Eq, highly reward installment loans. A colleague's score skyrocketed when a new student loan appeared on his credit, and my own score took a 30 point dive when a positive, paid auto loan was deleted prematurely in error. Also, I have seen scores actually rise when new cards report. Fico, it seems, does not like to see you go too long without getting new credit. (I'm talking years, not months creditjunkies I believe that the "magic mix" is 3-5 credit cards, 1-2 installment loans, and (of course) they love a RE loan. I think that the model was recently tweaked, resulting in more "Too many credit card" reason codes. I've seen those popping up more frequently. I don't know how much they deduct for that. More and more I am realizing that the "branch" design of the model makes it nearly impossible to reverse-engineer. There are so many variables. Cheers-- Calypso
Calypso, Have you seen whether or not say having an auto loan would boost your score more even though you've already got an unsecured installment loan? I'm also wondering how leases affect the scores. Does anyone know if leases regularly report, I've never seen one before on a credit report? Incidently I'm pretty sure the FICO scoring algorithm likes large limit credit cards too. I have 10 cc's and 4 cd secured loans and my score is a 771 beacon. A lot of those cc's are new, one is very old and one has a 30 k limit. Oddly enough I've never gotten number of cc's as a score factor.
Hey SS-- Interestingly, the "too many" code only popped up when the auto installment loan fell off prematurely. Somehow, losing the installment rerouted the report where the number of cards (which wasn't too many the month before) was suddenly too many. I also suspect that the model highly rewards steady "paying down" behavior. So that 2 identical situations would score differently if one was on the way up and one was on the way down. (I've had a looong day, so I don't think I said that clearly) Say Person X had 7 cards and debt went from 10K to 8K to 7K. Person Y had the same 7 cards (for the same length of time) and went from 2K to 5K to 7K. In Jan 03, they both hit 7K at the same time. I believe that X would have a higher score bc X just paid off 3K debt, and Y would have a lower score bc X just increased her debt, even though they owe the exact same amount and everything else is equal. That has been my (albeit unscientific) observation lo these many months. 50-60 points variance is all too common with very little change in behavior. Even more reason that we have to be so obsessed and tweak this stuff to stay on top.
Oh-- forgot to reply about leases. It's funny. I've looked at many, many factors on multiple reports, but have never seen a lease on a report I analyzed, so I don't know how it changes the scoring. You're right about high limits, though. I think the model loves them. I have always been curious about the credit scores of the extreme-rich, Oprah, Bill Gates-rich. I would love to see how the model handles them and keeps from penalizing them for spending 40-50K on their Black Centurion cards. It has to be by factoring in differentials for 200K credit limits. Right?
Thanks for the info Calypso! You know I wonder if I could get my girlfriend who works over at SHAPE magazine to persuade one of the big bux people to share a credit report it might be a hard sell, but I'll ask her. Also FYI Heidi Klum is short and its a running joke between my girlfriend and I how incapable models are(you'd be amazed at how many can't even drive)! One thing I wanted to mention is the Chevron Gas Card looks like a pretty good one to get. I recently applied for one because I had heard that fico likes you to have one, and also because when I pulled my insurance score from equifax, one of the reasons I didn't get a higher insurance score was because I didn't have a gas card. Two birds with one stone. Its been several months since I received the card and it hasn't shown up on a report. A CSR told me that they typically don't report until you have a balance on the card. So you might request a card and just sock drawer it for six months or more before you use it. I just put a balance on it a little while ago, so we'll see if she was correct.
Uh, correct me if I am worng, but I think you guys/gals are makeing an error. FICO is a score by fair, isaac, and company. They give FICO software to all CRA's. so... the reason you have different score is because you do not have the same information on each report. so, technically, if all three reports reported the exact same info 100% your 3 scores would be identical. (I will start a new thread aout this.) if so... HOW can equifax like installment loans in your FICO score, as opposed to the other breaus? (this line of thinking is only correct if my original assumption of FICO software being the same by all 3 is.) Hmmm?? Nestea
When I take out a secured loan (Apple Bank, NYC) they report to the CRA's but DON'T pull an inquiry. why should they? they know their money is safe..
If you have the money to pay it every month, there is an old trick: explain to the banker you are trying to build your credit, and you want a 10k loan secured by a cd to do so. ask them to grant you the loan, based on the CD, then PUT THAT SAME $10,000 into the cd that is securing the loan. understand? you walk out of the bank with no money, just a $10,000 carbon copy (for the check you "wrote" the bank), and a $10,000 loan. works with any amount... however, the higher the better (as far as other creditors seeing a large limit on the account). If it doesnt work the first time, go to the next bank or another branch. Took me 3 tries to get it done.
