Credit Score + Used Auto Loans

[Maurice]

I saw a thread recently that touched on this briefly but could not seem to find it again...

The conversation was about auto loans for private purchase / used and the impact on your credit score.  I have the ability to buy the vehicle outright but was considering taking a ~$5k loan ideally at 2-3% interest in order to build my score.  Current score is 740+ but it is all from credit cards/general spending and I have no loan payment history.  I figured this would help diversify my score.

Opinions on this?  The thread I read said it would only impact my score if length was >24months.  Is this correct?

[noturbizniss]

I saw a thread recently that touched on this briefly but could not seem to find it again...

The conversation was about auto loans for private purchase / used and the impact on your credit score.  I have the ability to buy the vehicle outright but was considering taking a ~$5k loan ideally at 2-3% interest in order to build my score.  Current score is 740+ but it is all from credit cards/general spending and I have no loan payment history.  I figured this would help diversify my score.

Opinions on this?  The thread I read said it would only impact my score if length was >24months.  Is this correct?

There's a thread dedicated to all things credit score related.
http://forums.dansdeals.com/index.php?topic=96.0
Thanks!

[Mendelssohn]

For FICO 8 scoring models, you will get a bump in scores with a mature (24+ months) loan that is paid down significantly.  Once the loan is paid off, your scores will drop to what they were before the loan.

With the previous scoring model, installment loans are pretty much ignored if you have at least 1 credit card reporting.

You can build a credit score over 800 with credit cards alone.  I wouldn't waste time or money on an installment loan unless you actually need the loan, and if you already have a mortgage reporting, this won't help you anyway.

[ydf]

For FICO 8 scoring models, you will get a bump in scores with a mature (24+ months) loan that is paid down significantly.  Once the loan is paid off, your scores will drop to what they were before the loan.

With the previous scoring model, installment loans are pretty much ignored if you have at least 1 credit card reporting.

You can build a credit score over 800 with credit cards alone.  I wouldn't waste time or money on an installment loan unless you actually need the loan, and if you already have a mortgage reporting, this won't help you anyway.

so are you also suggesting on this topic different then dan? Dan suggests to have different types of loans not only cc  for best socre, but you suggest that it wont make a difference once its paid so there is no need of having different types of loans do I have it right?

[ydf]

For FICO 8 scoring models, you will get a bump in scores with a mature (24+ months) loan that is paid down significantly.  Once the loan is paid off, your scores will drop to what they were before the loan.

With the previous scoring model, installment loans are pretty much ignored if you have at least 1 credit card reporting.

You can build a credit score over 800 with credit cards alone.  I wouldn't waste time or money on an installment loan unless you actually need the loan, and if you already have a mortgage reporting, this won't help you anyway.

a score of 800+ of cc alone? Maybe after a cc history of 20 years+ is it possible otherwise?

[Mendelssohn]

so are you also suggesting on this topic different then dan? Dan suggests to have different types of loans not only cc  for best socre, but you suggest that it wont make a difference once its paid so there is no need of having different types of loans do I have it right?

I'm not sure why every credit post I make needs to be compared to Dan.

I'm stating what I know to be true based on years of research by a lot of people with a ton of data points. I even explained how it is different with different FICO scoring models.

You are better off focusing on utilization AND limiting the number of cards reporting a balance.

[Mendelssohn]

a score of 800+ of cc alone? Maybe after a cc history of 20 years+ is it possible otherwise?

Assuming clean credit reports, most people can break into the 800s when their oldest account hits the 10 year mark. This is also assuming that you have 5 open mature CCs (24+ months), have utilization in check and have no more than 1-2 cards reporting a balance. Yes, it can be done with CCs alone.

[ydf]

Assuming clean credit reports, most people can break into the 800s when their oldest account hits the 10 year mark. This is also assuming that you have 5 open mature CCs (24+ months), have utilization in check and have no more than 1-2 cards reporting a balance. Yes, it can be done with CCs alone.

thanks, and you can just with this get a morgatge?

[Mendelssohn]

thanks, and you can just with this get a morgatge?

Yes.

The only negative from having no installment accounts reporting is that your auto enhanced FICOs will be lower. I don't know how most people here get an auto loan if they need one, but getting an approval in advance from a credit union and freezing your credit reports works well and helps you avoid a ton of inquiries. Most CUs tend to use the 04 FICO scores exclusively if they do mortgages (those scoring models are required for Fannie Mae and Freddie Mac compliant mortgages), so the auto enhanced FICOs don't even come in to play. PenFed is an exception since they seem to use the NextGen score for credit cards, so they use more than one scoring model for their financial products.

Remember what I posted earlier that the scoring formulas used for mortgages pretty much ignore installment loans if you have at least 1 CC open. Some people don't even get anything from adding a mortgage with no other installments reporting.

Utilization and the number of cards reporting a balance is way more important.

[ChaimMoskowitz]

I'm not sure why every credit post I make needs to be compared to Dan.

Talk about scoring buckets and I guarantee that won't happen. 

[Mendelssohn]

Talk about scoring buckets and I guarantee that won't happen. 

Ok.

One other thing to consider when keeping utilization in check is that you can be put in a different scoring bucket/scorecard. If your utilization goes above 10% for example, you may be moved out of the ultra low utilization group into a different bucket. Once your utilization is back to the ultra low level, it may take months to get put back into your original scoring bucket.

FICO scores are not a snapshot in time. They are a snapshot in time based in your scoring bucket. So yes, FICO does have some memory.

[ChaimMoskowitz]

Was it ever determine how many buckets there are and what they are based on?

[Mendelssohn]

Was it ever determine how many buckets there are and what they are based on?

I don't remember how many there are for the various formulas or if it was ever made public, but there are several for reports with negatives and also clean reports.

[ChaimMoskowitz]

Say one month that nothing change on my CR but my score went down for some reason. Could this be due to me being moved to a different bucket?

[Mendelssohn]

Say one month that nothing change on my CR but my score went down for some reason. Could this be due to me being moved to a different bucket?

Yes, it's possible.

Many people may find it hard to believe, but it's very possible for your score to go down when you get moved to a different scoring bucket because you are being compared to people with better profiles in the new scoring bucket.

[ChaimMoskowitz]

Many people may find it hard to believe, but it's very possible for your score to go down when you get moved to a different scoring bucket because you are being compared to people with better profiles in the new scoring bucket.

+1000

[Mendelssohn]

Of course being put in a better scoring bucket also gives you the potential for a higher score.

[noturbizniss]

Of course being put in a better scoring bucket also gives you the potential for a higher score.

Is there any way to know what bucket one is in our if one has moved?

[tzifanya54]

Very interesting stuff here. Thanks Mendelssohn and CM for discussing it.

[ChaimMoskowitz]

Is there any way to know what bucket one is in our if one has moved?

AFAIK no.