Installments and debt ratios

Discussion in 'Credit Talk' started by Shantel, Jul 2, 2001.

  1. Shantel

    Shantel Well-Known Member

    Someone brought up in another thread about installment loans and mentioned it in the debt to limit ratio.

    My question is, do they really impact your debt to limit ratio? I thought that only involved revolving debt?

    If it does impact, that must suck because if you have a mortgage (which in essence is a very large installment loan) and you don't make a large downpayment, your d-to-l ratio will suck...even if that's the only thing you have.

    And at the same time....remember back when someone posted about going to the bank and getting a secured loan. That's an installment loan and you're supposed to do that 3 times? Someone please enlighten me.

    GEORGE Well-Known Member

  3. marci

    marci Well-Known Member

    There are always two criterion to meet for credit:

    That of the FI/Emperica/Beacon credit scoring model.

    That of the individual creditor who has it's own internal scoring model through which the FICO score is used *as a part* along with other info, such as income etc....

    For the CRA model, I do not think installment utilization is a factor in scoring, as I don't remember seeing it listed as an adverse reason code nor have I seen it calculated on the "lender's version" of my own credit report. I have seen revolving calculations on my "lender's" credit reports.

    But, with respect to a particular company's internal scoring model, for one company it DID matter wrt my application and I had to explain it. Different companies rate factors differently based on whatever their own underwriting criteria happen to be at the time.
  4. Jim

    Jim Well-Known Member

    Hi Shantel!

    In my opinion, installment loans do not affect the debt to limit ratio for credit scoring. Only revolving credit does.

    On the 3 loan idea. PSUgirl, if I remember correctly posted about it. It has some merit if it is paid in one year. In effect, after 12 monthly payments - you have 3 paid tradelines. Do a search on PSUgirl and read about the mechanics of this.

    However, even though I did 1 paid installment loan through the credit union a while back. I would be really concerned about the negative effect of "up to 3 hard credit inquiries". So you have to pick and choose carefully when dealing with lenders.
  5. dlo64

    dlo64 Well-Known Member

    I had planned on doing the secured loan thing before PSUgirl posted about it. I only took out two CU loans and already had bank loan in process where the bank uses the proceeds from the loan and deposits them into a CD matching the term of the loan. So far these loans are too new to report.

    However, one of my CU's was nice enough to provide me a copy of my TU credit report. This copy has the Emperica score and the ratios on it. From my interpretation, installment does not figure into the ratio. Right now it shows that 98% of my open revolving lines are open and available (good for me). Installment is another line and it shows a blank.

    Hope this helps.

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