Installment Loans and Credit Scores – Episode #58

October 6, 2008 by  
Filed under Episodes

Installment Loans and Credit Scores

The question is how do installment loans impact your credit score?

First, what’s an installment loan. Well, an installment loan is a loan where you have borrowed a fixed amount and that amount is paid down through installment payments. Examples are auto and home loans.

Let’s contrast this with revolving credit, where the balance revolves over time. Example is a credit card.

Why are these important? Well one of the FICO credit score factors in mixture of credit. And the folks at fico say that people with a mixture of installment have the best credit. Even better, is having a record of installment credit paid off. I’ve got a car loan from years ago paid in full. So if you can afford to get 3 year loan vs a 4 year loan for that car — your credit score may thank you a year earlier.

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Comments

5 Responses to “Installment Loans and Credit Scores – Episode #58”

  1. Kenneth Bevineau on June 27th, 2009 1:57 am

    I have a charge off from a lending company(Midwest Acceptance) I’m currently disputing this item with the company and the credit bureaus. My credit score is 514 but I’m currently paying off items and adding a great mixture of credit. My question is how severe is this charge off and will be able to acquire another auto loan with this on my credit report. Thanks a ton you can also post this question for others who may need the same advice. Once again Thanks

  2. VideoCreditScore-Andy on June 27th, 2009 6:03 am

    It’s hard to tell the severity without seeing the entire picture of your report. The older the item, the less impact if will have on your credit score. You might be able to get the car loan, but your rates will be higher than if you waited for it to fall off your report – 7 years from when it posted as a charge off. I’m putting together a post on when items fall off your credit report. Stay tuned. Personally, for a car, I’d wait until your score is up above 620. Of course, if your dispute succeeds, you should see a large point increase – especially being in the low 500s – if that’s really the biggest item. Review my post on the credit score factors. Kenneth, thanks for posting this to help others too.

  3. Kenneth Bevineau on September 17th, 2009 9:03 pm

    Thanks a lot for sharing your knowledge about how things work with your credit. I have great news,the auto loan charge off was deleted. To those who are frequent readers of this site, disputing inaccurate items on your credit report is worth it. I know some are thinking what if they just update it through the 3 major credit bureaus, Good news section 611 (B) (iii) Requirement Relating To Deleted Materials states that the credit reporting agency have to notify you within five days of reinserting a deleted item; which 9 times out of 10 they do not. So this violation will instantly reward you with a fine of $1000. So once its deleted its gone, I will like to truly give a special thanks to the true genius, the guy who own this page. His knowledge has helped me and plenty others. Thanks for this page

  4. Michelle on June 24th, 2012 9:42 am

    I am wondering how will paying off my car loan affect my credit score? I have another year to go on a 5 yr auto loan. However, I had a 6 yr lease prior to this loan that was paid off successfully, no lates. So, overall, I have nearly 9 yrs of installment payment history on my credit report.

    I am trying to increase my approval rate at the bank so I can obtain a mortgage. If I didnt’ have a car payment, I would qualify for higher amount. But I don’t want to pay off the loan if it’s going to hurt my creidt score. SInce I need a good score to obtain a loan interest rate on the mortgage,

    What to do????

  5. VideoCreditScore-Andy on July 29th, 2012 12:52 pm

    Paying it off won’t hurt your score since you are at year 4. I’d go ahead and do it to get the best rate, if I was in your situation.

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