Ok, I was looking at my credit report and I was already aware of the preferred debt to credit ratio for revolving accounts but the installment account caught me off guard. According to Equifax..... "Lenders usually take a positive view of individuals with a range of credit accounts - car loan, credit cards, mortgage, etc. - that have a record of timely payments. However, a high debt to credit ratio on certain types of revolving (credit card) accounts and installment loans will typically have a negative impact." Now my question is how fair is it to use installment accounts. My one and only installment account is a car loan at the credit union. The utilization rate will always be high because in the case of a car, the rate will only be the difference between the amount financed and what you owe. It's not like when financing you are offered a line of credit that overly exceeds the actual loan amount to lower you utilization rate. I ask for others thoughts in case I am misunderstanding something here. I mean credit scores are running things these days.
The more recently you have made that purchase, the more it will reflect negatively on your score. But as you make the payments and the amount of debt goes down, the debt to credit ratio improves. So by the time you've had it a couple of years, if you're making all your payments on time, it should have a strong positive impact on your credit score.
Might want to check with your credit union on how and if they report. Some credit unions do not do credit reporting (good or bad). So if you make your payments on time, it does not show up to boost your credit score.
Having been a lender and underwriter, I can tell you that we are able to see if a credit score might be higher because of little credit so I wouldn't be too worried that your only installment loan is a car. It shows up as an auto loan and lenders understand they you aren't going to ever take out an auto loan for more than the purchase price of the car. The main concern is are you paying it as agreed. And PBJ is correct, not all lenders report to all 3 agencies. That is why I always pull all 3 scores from MyFico.com so I can see what is showing up where. That is also why your credit scores can very from equifax, to experian, to transunion by as much as 50 points I've seen. And so often times, lenders will use the middle score when offering you rates and terms.
Thanks to both of you and you're both right. And incidentally my credit union does report. I guess it was just a pet peeve of mine with the government pushing the clash for clunkers program last year. I mean yeah you got the credit or whatever, but at what cost to your credit score. And depending on the cost of the car, how long will that negative impact show. I guess it just a sore spot with me. I just prefer to know all the implications of my actions before hand when at all possible. Thanks.
