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I monitor my Experian credit score through Credit Expert. There is a section that tells me what lowers or increases my credit score. The website states:

“What factors lower your PLUS score:

Although having installment loans, such as auto loans, on your credit report can help you build a solid credit history, having too many installment loans can bring your score down because they carry fixed monthly payments. Fixed payments are sometimes viewed by lenders as negative because they may affect your ability to meet other loan obligations. As you pay off your existing installment loans you may begin to improve your credit score.”



I’ve been told that it’s a good idea to keep installment loans open however this message tells me otherwise. I currently have 5 active installment accounts and they are all education loans. I have roughly $10,000 spread out amongst these 5 loans. Each loan is relatively small ranging from $1,500 to $3,000 per loan. This $10,000 represents my ONLY unsecured debt. I don’t have any credit card debt or other installment loans. I do, however, have roughly $1.6M in secured real estate debt. My PLUS score is currently 744 (however my Experian FICO shows being around 735 which is the lowest of the three agencies).

Interestingly enough, I make only ONE monthly P&I payment to Sallie Mae and it covers all five loans. When I purchased my first home some time back, they required that the loans be “partially paid down” in order to qualify for the mortgage. At the time, my loans were roughly $20,000 so half was required to be paid off. However, in this process my loans were chopped up into 5 separate loans. The lending bank didn’t give a reason other than it was a requirement.

I’m financially capable of paying down this $10,000 education debt but I have hesitated because I thought having installment loans actually improved my credit. My interest rate is also better than my current savings (4.25% APR vs 5.65% APY) so this was another reason for keeping the loan active.

My question is would paying down and closing these 5 installment loans improve or reduce my score? Should I pay them down to near zero (maybe leave $300/loan) but keep them open for a few more years? Or should I just leave alone?

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In my experience, paying down the installment loan didn't make any difference to my score. I may be wrong but I recently paid down my car loan ($17000) and it didn't make my score increase a single point. I have had only one this installment loan on my CRA. BTW I checked my score through Credit Secure once a week and I paid down this loan last month and CRA's are reporting the correct ($0) balances.

I noticed the same thing, the installment loans didn't effect my score either. However I never have more than one going at a time. But figuring you have so many, I imagine closing them or even some will make a difference.

Like you already experienced with your bank some lenders will weigh that against you (debt/income ratio). If it is too small to make a difference, I wouldn't worry about it. Unless you're looking to obtain some new HELOC or something, your score at 735 is just fine where it is.

the PLUS score is not a FICO
it is a new scoring system that may or may not be used by creditors anytime soon

I'd ignore that diagnostic.

Thanks for the replies! I was thinking it might be a good idea to pay down 4 of the 5 loans and just keep one open but since closing only one didn’t make a difference, I might just close all 5. In respect to my monthly obligations, the $140 is peanuts compared to my $10,000+ mortgage payments. But I figured since the debt was unsecured it could make a difference.

By the way, does this ratio (monthly mortgage debt obligations vs. unsecured debt obligations) affect your score? Student loans must be seen as most negative because there is no collateral (similar to credit card debt). With a car payment, at least the car itself could provide some collateral.

theman2 said: the PLUS score is not a FICO
it is a new scoring system that may or may not be used by creditors anytime soon

I'd ignore that diagnostic.


I'd agree, it's more of a "FAKO" score, but I can't ignore the fact that my Experian score is consistently 20+ points lower than my TU and EQ scores. The PLUS scores are consistently 15-25 points higher than my actual FICO score (from Experian). It's been that way for the last 3 years.

pj737 said: theman2 said: the PLUS score is not a FICO
it is a new scoring system that may or may not be used by creditors anytime soon

I'd ignore that diagnostic.
I'd agree, it's more of a "FAKO" score, but I can't ignore the fact that my Experian score is consistently 20+ points lower than my TU and EQ scores. The PLUS scores are consistently 15-25 points higher than my actual FICO score (from Experian). It's been that way for the last 3 years.
Actually, a FAKO is a bankcard modified FICO and has been around for quite some time. The PLUS scoring system is new and is an entirely different beast. The score goes up to 900 (which means scores should be slightly higher on average) and takes different factors into account.

Don't compare PLUS to FICOs/FAKOs. Differences in your FICO or FAKO between CRAs is going to be discrepancies on your report and the inquires shown by that CRA.

Also, a PLUS score is not a VantageScore, which is yet another beastie.

This is all guesswork on my part.

My impression is that installment loans, (fixed-payment), are considered to "impair" your ability to pay, by virtue of their required payments. I don't think the balance is quite as big a deal as the payment amount.

So, having really giant monthly payments is probably going to impair your credit, either in terms of your FICO, or just some common-sense measurement.

Ideally for score purposes, you'd have a solid history of installment loans, but not much in terms of current ones.

theman2 said: Actually, a FAKO is a bankcard modified FICO and has been around for quite some time.

That is not the usage of 'FAKO' that I am familiar with. Where did you get that idea?
AFAIK, 'FAKO' is a reference to non Fair Isaac scores which attempt to approximate a FICO score, usually Beacon. The card enhanced FICO isn't fake, it's just a different product from Fair Isaac than we normally see.

I paid off my school loan and it was never reported to Equifax. I sent them documentation and asked them to remove it. When they did, my score actually went down like 10 points. That was the only loan I had.

Trinidon2k said: I paid off my school loan and it was never reported to Equifax. I sent them documentation and asked them to remove it. When they did, my score actually went down like 10 points. That was the only loan I had.Wow ... you know just enough about credit scoring to be dangerous.

You didn't want it removed from your account, unless it showed negative information (i.e., 30 day late payments) it was helping your score.

It actually hurts your score to get rid of installment loans. Credit mix is a part of your score and it shows responsible use of multiple kinds of credit. Makes no sense if you ask me. If I pay off my car loan, my score shouldn't drop. To me it looks like if I pay off my loan I am less of a risk....

InFlamed said: It actually hurts your score to get rid of installment loans. Credit mix is a part of your score and it shows responsible use of multiple kinds of credit. Makes no sense if you ask me. If I pay off my car loan, my score shouldn't drop. To me it looks like if I pay off my loan I am less of a risk....

My car loan should be paid off this year, but I have no real intention of getting another any time soon. What's the cheapest and/or 0% intallment loan you can get hopefully on something I could actually use?

mattun said: InFlamed said: It actually hurts your score to get rid of installment loans. Credit mix is a part of your score and it shows responsible use of multiple kinds of credit. Makes no sense if you ask me. If I pay off my car loan, my score shouldn't drop. To me it looks like if I pay off my loan I am less of a risk....

My car loan should be paid off this year, but I have no real intention of getting another any time soon. What's the cheapest and/or 0% intallment loan you can get hopefully on something I could actually use?
The loan doesn't have to be open, just on your report.

InFlamed said: It actually hurts your score to get rid of installment loans. Credit mix is a part of your score and it shows responsible use of multiple kinds of credit. Makes no sense if you ask me. If I pay off my car loan, my score shouldn't drop. To me it looks like if I pay off my loan I am less of a risk....

I agree. But when I read that summary on Credit Expert it made me think a little. According to their website having "too many" installment accounts can hurt my score. I can't just take that statement with a grain of salt. Maybe 1 or 2 is good to have all the time (as many here have suggested) but there are a total of 5 installment accounts showing up on my credit. This may cause the computer scoring system to dock a few points from my score just because I have multiple accounts. I was thinking of paying off three of them and keeping two active. But then again, I only make one payment through Sallie Mae. I'll give them a call to see what they say about my options.



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