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I just got my FICO score from my bank (Citibank) and there were two items listed. One made sense to me, but this one didn't:

"Lack of recent installment loan information
FICO® Scores consider recent non-mortgage installment loans (such as auto or student loans) information on a person’s credit report. Your score was impacted because your credit report shows no recent non-mortgage installment loans or insufficient recent information about your loans."

I have no installment loans. My car payment ended about 13 years ago. It seems strange that having successfully paid off an installment loan eventually hurts your credit score, because then you don't have the loan for them to see your progress or payment history on.

Any thoughts on how to deal with this? I certainly don't want to sign up for some superfluous loan, just to pay interest on it and then gradually pay it off. That seems silly.

Thanks.

Justin
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FICO estimates your ability to repay debt. It doesn't reflect what is best for your finances.

The report must include items that decreased your score. The higher your score the more illogical the statements.

My FICO is slightly above 800 with only a few credit cards on my credit report. All other accounts have aged out. Unless you are fixated on obtaining a perfect credit score, a variety of credit isn't needed for an excellent credit rating.
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FICO estimates your ability to repay debt. It doesn't reflect what is best for your finances.

How does it estimate your ability to repay debt. There are not any incomes included in the calculations. It represents your credit history - how reliably and timely you pay any debts off. Also the amount of debt to credit you are utilizing.

PSU
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FICO estimates your ability to repay debt. It doesn't reflect what is best for your finances.

How does it estimate your ability to repay debt. There are not any incomes included in the calculations. It represents your credit history - how reliably and timely you pay any debts off. Also the amount of debt to credit you are utilizing.


It would be more accurate to say that FICO estimates how likely you are to repay your debt, rather than your ability to do so. Bear in mind that the score was created for lenders, who care far more about whether you *will* repay the debt than about whether you *can* repay the debt.

It's a fine point, to be sure; people with higher FICO scores may overlook the possibility that someone could have the ability to repay debt but not actually repay it.

Patzer
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It would be more accurate to say that FICO estimates how likely you are to repay your debt, rather than your ability to do so. Bear in mind that the score was created for lenders, who care far more about whether you *will* repay the debt than about whether you *can* repay the debt.

That was the point I was trying to make. You said it better than I did.

PSU
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I certainly don't want to sign up for some superfluous loan, just to pay interest on it and then gradually pay it off. That seems silly.


I bought a new refrigerator last month and took advantage of their financing option. No interest for 12 months as long as I make regular payments. It will be paid off in 11 months. While I could have paid cash, it seemed like a better choice to take the offer.
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If I needed a new major appliance, or a new car, I'd consider financing. Especially, if it was no interest, like you did. At that point, it seems like it is both good for the credit score and beneficial for personal finances.

Does that type of financing show up as an "Installment Loan", or if they do it by store credit card, as "Revolving Credit"?

I'm not focused on getting a perfect FICO score. I was just sort of curious. And what vkg said also makes sense. The better your score, the harder they have to stretch to find explicable things for you to improve on.

Thanks.

Justin
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If I needed a new major appliance, or a new car, I'd consider financing. Especially, if it was no interest, like you did. At that point, it seems like it is both good for the credit score and beneficial for personal finances.

Does that type of financing show up as an "Installment Loan", or if they do it by store credit card, as "Revolving Credit"?


Something that requires a fixed monthly payment and is scheduled to be paid off in a specified time period ought to show up as an installment loan. Something that is open-ended where you pick how much to pay, subject to a minimum, ought to show up as revolving credit. The typical new car loan should show as an installment loan. The typical no interest for X months on a store card should show up as revolving credit. If it's a hybrid somewhere in the middle, your guess is as good as mine.

I'm not focused on getting a perfect FICO score. I was just sort of curious.

Curiosity is normal, and not a bad thing, however . . .

I have no statistically valid study to rely on, but in 10 years of off and on watching message boards I've noticed that the people who say they have very high FICO scores tend to be focused on what's the best thing to do for their finances, blind to what it does to the credit score. Certainly I never knew my credit score until the message boards made me curious; I only knew that if I wanted to buy a car, I could borrow more money than I wanted to borrow at the most favorable rate the lender offered.

Later, I spent some time with zero percent offers earning interest on money that wasn't mine; that stopped being worth my time when interest rates started going way low in 2008 or so. Not that I'd pass up a zero percent offer that dropped into my lap for something I was going to buy anyway; but the return isn't enough to go out of my way to create such a situation right now.

And yes, the free reports about my credit score say it's hurt by lack of a first mortgage and lack of installment loans. I really don't care. I can still borrow more money than I want to at favorable rates, if I find a situation where borrowing makes sense.

Right now, my borrowing is limited to a month of float on credit cards for current expenses. That hasn't seemed to particularly hurt my credit score, even though the mortgage and installment loans have all aged off the report.

No, the float doesn't earn me enough interest to sneeze at; but there is the cash back from the purchases making it worth my while to use the cards as long as I don't succumb to the incentive to spend more.

Patzer
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Patzer:

{{{If I needed a new major appliance, or a new car, I'd consider financing. Especially, if it was no interest, like you did. At that point, it seems like it is both good for the credit score and beneficial for personal finances.

Does that type of financing show up as an "Installment Loan", or if they do it by store credit card, as "Revolving Credit"?}}}

"Something that requires a fixed monthly payment and is scheduled to be paid off in a specified time period ought to show up as an installment loan. Something that is open-ended where you pick how much to pay, subject to a minimum, ought to show up as revolving credit."

A revolving loan is one in which you can borrow, pay and reborrow. Any installment loan that allows you to prepay in whole or in part without penalty does not become a revolving loan just because "you pick how much to pay, subject to a minimum".

Regards, JAFO
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A revolving loan is one in which you can borrow, pay and reborrow. Any installment loan that allows you to prepay in whole or in part without penalty does not become a revolving loan just because "you pick how much to pay, subject to a minimum".

Thanks for the clarification. I knew the typical characteristics, but never thought about the definition of revolving versus installment.

Patzer
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Patzer:

<<<A revolving loan is one in which you can borrow, pay and reborrow. Any installment loan that allows you to prepay in whole or in part without penalty does not become a revolving loan just because "you pick how much to pay, subject to a minimum".>>>

"Thanks for the clarification. I knew the typical characteristics, but never thought about the definition of revolving versus installment."

You are welcome.

You had it sort of covered by your use of "open-ended" if you were using in a very technical sense, and I just wanted to clarify.

Revolve describes the potential principal balance amount, whereas for an installment loan (barring late payments and defaults) timely payments mean that the principal balance always declines (and principal, once repaid, cannot be re-borrowed). For example consider the primary difference between a HELOC and HEL.

Regards, JAFO
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It seems strange that having successfully paid off an installment loan eventually hurts your credit score, because then you don't have the loan for them to see your progress or payment history on.

New credit is considered a negative, and may decrease your FICO score.

With a long credit history on several credit cards, my FICO score dropped a few points when I closed a credit card and opened a different credit card. The dip was probably a result of new credit, but wasn't enough to be absolutely certain that it wasn't due normal fluctuation in reported balances.
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...Any thoughts on how to deal with this? I certainly don't want to sign up for some superfluous loan, just to pay interest on it and then gradually pay it off. That seems silly.

Thanks.

Justin
- JustinFields | Date: 4/29/2016 11:47:11 AM | Number: 310470

You did not mention what your current FICO score happens to be!!! My advice, unless you are close to obtaining a mortgage, applying for a new job, or purchasing an automobile or other high cost item you need to finance, your FICO score is what it is!!!!!

David
WHOVPLLC
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You did not mention what your current FICO score happens to be!!! My advice, unless you are close to obtaining a mortgage, applying for a new job, or purchasing an automobile or other high cost item you need to finance, your FICO score is what it is!!!!!

FICO scores are used for more than obtaining credit. If the score is low, then some effort might be justified. Mostly, it is time on established accounts and reliability paying any debts that is required. Paying interest isn't a requirement.

In some cases adding a credit card would be useful. I have always maintained multiple credit cards on the theory that over time there will either be a problem with the issuer or my needs change. With long standing multiple accounts, changing an account isn't a problem.

It is only recently that we obtained a credit card that doesn't have a foreign transaction fee. Previously, we hadn't traveled out of the country enough to justify it.
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David,

Currently, it is 771. I'm sure as I pay off a credit card, it will go up. I had transferred a balance on to a 0% offer. I think the high utilization on that one card contributed to the other note they listed, which was the ratio of balance to limit. That really only applies to that one card. I have an Amex card I use pretty much only at Costco (until their upcoming change). I have an Amazon rewards Visa card. Both of those get paid in full every month. Two other revolving credit accounts (credit cards) are zero balance and idle, after having been paid off completely.

Part of why I was curious is a set of upcoming purchases. In the next year or so, I'd like to buy a house. My 1999 Toyota will also need replacing at some point. So, headed toward the mortgage process, I was looking to see the credit score, and if there were any reasonable actions I could take to improve it.

Justin
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Two other revolving credit accounts (credit cards) are zero balance and idle, after having been paid off completely.

If you don't want those idle cards closed, I would suggest using (and paying off, of course) those idle cards every few months. You need to be aware that, due to increases in utilization ratio and/or decreases in average age of open accounts, closure of idle accounts can decrease your credit score.

A couple of years ago, my oldest account (@ 18 years) was closed because I hadn't used it for a while. I knew that risk and was okay with it because my next oldest account (@ 16 years) was still pretty active and I was already using a very small portion of my available credit. Combined with the fact that I didn't foresee the need for any additional credit in the near future, I wasn't worried enough about the account closing. When it did close, my score dropped about 5 - 10 points, and has pretty much recovered since then. However, since you are planning on applying for new credit in the future, I would suggest that it's probably something that you ought to be concerned about.

In the next year or so, I'd like to buy a house. My 1999 Toyota will also need replacing at some point. So, headed toward the mortgage process, I was looking to see the credit score, and if there were any reasonable actions I could take to improve it.

With a 771 score, you're in pretty good shape for qualifying for a mortgage.

In order to keep your credit where it is (or even improve it), if you will need new/additional credit (loan or lease) to replace your car, or for something like furniture for the house, etc., I would definitely suggest waiting until after you have closed on the house before applying for the new credit, if at all possible.

AJ
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AJ,

Good points. I can run a transaction or two through the idle cards (and pay them off in full) every few months to make sure they stay open.

I plan to deal with the mortgage before the car, as long as the car holds out.

Thanks for the suggestions.

Justin
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Fair Issac which provides FICO score is EVIL - EOM.

David
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