I saw this thread on myfico:http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/penalized-for-not-having-installment-loan-what-does-this-mean/td-p/3151642
Some people there are recommending secured share loans from credit unions. The way they work is that you put like $550 into the credit union account, and it serves as collateral for a $500 loan. Over the course of the next four or five years, you pay about $9 a month. It works out to paying about $50 interest total (around 3.5% interest). The idea is that the loans are small and provide credit variety for people who otherwise only have credit cards. I'm curious for the opinions of people here about them.
I probably will not be buying real estate / needing a mortgage in 2015 or 2016 but may in 2017 or soon thereafter. I would also be able to make maybe a 30% down payment on a home.
The $60 in interest is small, but it is one more bill to pay each month, and it would mean one more financial institution / set of accounts to monitor. But my thinking is that if it even helps me get 0.1% lower on a mortgage rate a few years from now, it will easily be worth it.
I have never had any sort of installment loan, and my current understanding is that getting one will probably boost my credit score (and overall mortgage-worthiness) after it has been open for about 6 months. I understand I would also lose some (but hopefully not all) of the benefit once the loan is paid in full in 4 or 5 years.
I do not anticipate any upcoming purchases which I could finance in the form of an installment loan. Even if I was making such a purchase, I expect the terms would be less favorable or involve paying more in total interest than I would with a share secured loan. That is, it makes more sense financially to pay 3.5% interest on $500 than 7% on $10,000.
My main interests in getting a secured share loan would be to allow myself a FICO boost to improve my odds of getting good mortgage terms later. Or does a potential 750 FICO only from credit cards (but with a 30% down payment) nearly always get the best terms?
I would also like to have some 'wiggle room' about opening and closing travel cards for bonuses in the future without having a low AAoA hurt me too much. An extra $500 or $1,000 in travel bonuses would be nice, and I suppose a lower AAoA matters less once I have 4-6 cards that have each been open for 3 or 4 years with good history.
I'm not sure how much importance to assign to that "lack of recent installment loan information" line that appears on adverse action letters (the letters that give my FICO and say why I get a high APR / low CL).
I do not need to repair my credit in any way, or to get the first step or two going. That makes me a little different than many people on the myfico thread.
So should I get one? Two? Or just stick with credit cards until more is known about FICO 08 scoring?
I do still find the idea a bit bizarre. I use at least four different cards each month. That's four different bills I pay consistently every month.