Sidestepping the FICO blues
October 25, 2006 2:37 AM Subscribe
Short-term loan offerings: Which product keeps the FICO "ding" to an absolute minimum?
In the next few months, I'm planning to borrow a few grand for some house fixups and a few other things. Strictly short term, with an expected payoff in six months. I've got no credit card debt, a FICO in the low 700s, and steady income, so my risk exposure's fairly limited.
About two years ago, my FICO took a 30-point hit due to "revolving credit." Later, I found out that this referred to my home equity line of credit, which was viewed, apparently, in the same light as credit card debt. So I've nixed this route.
I figure I've got three options this time around.
1.A home equity *loan* (a flat amount, rather than a revolving line).
Pro: Should be regarded as a second mortgage, rather than a credit line. No FICO ding, I hope.
Con: 7% plus interest.
2. Borrowing from an existing credit card.
Pro: No new ap form to fill out -- easy as pie. A zero rate for the first six months, and I'd pay off the loan at the end of this term.
Con: My "credit utilization ratio" for the card would go up to 100%. Major ding, possibly. Also, I'd have to phone in payments every month, losing the convenience of autopay.
3.Apply for a new card with a high credit limit.
Pro: The credit utilization ratio on my existing cards would remain the same.Zero percent interest, short term.
Cons: 100% credit utilization on the new card, for a ding. A "new card application" potential ding.
4. (Insert hive suggestion here).
Comments, feedback, ideas? Also, if I go the "new card" route, suggestions for specific cards with good terms also welcome.
In the next few months, I'm planning to borrow a few grand for some house fixups and a few other things. Strictly short term, with an expected payoff in six months. I've got no credit card debt, a FICO in the low 700s, and steady income, so my risk exposure's fairly limited.
About two years ago, my FICO took a 30-point hit due to "revolving credit." Later, I found out that this referred to my home equity line of credit, which was viewed, apparently, in the same light as credit card debt. So I've nixed this route.
I figure I've got three options this time around.
1.A home equity *loan* (a flat amount, rather than a revolving line).
Pro: Should be regarded as a second mortgage, rather than a credit line. No FICO ding, I hope.
Con: 7% plus interest.
2. Borrowing from an existing credit card.
Pro: No new ap form to fill out -- easy as pie. A zero rate for the first six months, and I'd pay off the loan at the end of this term.
Con: My "credit utilization ratio" for the card would go up to 100%. Major ding, possibly. Also, I'd have to phone in payments every month, losing the convenience of autopay.
3.Apply for a new card with a high credit limit.
Pro: The credit utilization ratio on my existing cards would remain the same.Zero percent interest, short term.
Cons: 100% credit utilization on the new card, for a ding. A "new card application" potential ding.
4. (Insert hive suggestion here).
Comments, feedback, ideas? Also, if I go the "new card" route, suggestions for specific cards with good terms also welcome.
Are you attempting to do someting in the short term with your credit rating? If not, its likely that you score will return return to whatever level its at now (roughly) after you pay off the loan.
The only option I see that does not do this, is opening a new card, because it will increase your total available balance after you pay it off, so that could help your score, or hinder, depending on the total amount open to you in relation to your income and other factors.
Also, 7 % interest over 6 months is pretty low if you went with the home equity.
One final tid bit, you get your best fico score when you have some amount charged on your cards and are paying monthly, I believe thats 3-5%? but I can't remember the specific numbers on that one.
good luck.
posted by crewshell at 4:08 AM on October 25, 2006
The only option I see that does not do this, is opening a new card, because it will increase your total available balance after you pay it off, so that could help your score, or hinder, depending on the total amount open to you in relation to your income and other factors.
Also, 7 % interest over 6 months is pretty low if you went with the home equity.
One final tid bit, you get your best fico score when you have some amount charged on your cards and are paying monthly, I believe thats 3-5%? but I can't remember the specific numbers on that one.
good luck.
posted by crewshell at 4:08 AM on October 25, 2006
How much total credit limit do you currently have? It sounds like a few grand, which ain't much.
Why do you care if your FICO is affected for a few months? If you don't plan to purchase a home or car in the next year or so, there is no reason you should care.
posted by raf at 5:59 AM on October 25, 2006
Why do you care if your FICO is affected for a few months? If you don't plan to purchase a home or car in the next year or so, there is no reason you should care.
posted by raf at 5:59 AM on October 25, 2006
Response by poster: The credit limit on my two main cards adds up to 40K, which would be about the total I'd borrow.
Actually, I wouldn't give a damn if my credit limit were affected for a few months. No new purchases of homes or cars in the pike for two years or more.
But FICO dings have a way of hanging around.
If I borrowed on the cards and took the FICO hit, how long would it be after I returned the money for my score to be restored to normal?
posted by Gordion Knott at 6:59 AM on October 25, 2006
Actually, I wouldn't give a damn if my credit limit were affected for a few months. No new purchases of homes or cars in the pike for two years or more.
But FICO dings have a way of hanging around.
If I borrowed on the cards and took the FICO hit, how long would it be after I returned the money for my score to be restored to normal?
posted by Gordion Knott at 6:59 AM on October 25, 2006
If I borrowed on the cards and took the FICO hit, how long would it be after I returned the money for my score to be restored to normal?
Up to a month, depending on how quickly your credit cards report to the bureaus.
posted by kindall at 7:46 AM on October 25, 2006
Up to a month, depending on how quickly your credit cards report to the bureaus.
posted by kindall at 7:46 AM on October 25, 2006
If you plan to be able to pay it off in six months, why not simply save the money up for the next six months, and then pay cash for the remodel? Unless it's an emergency where the house would sustain further damage by waiting, there's no reason at all to borrow money for this. If some of it is an emergency and some is a luxury, you could borrow a smaller amount for the necessities now, pay it off, and then begin saving for the luxury parts of the project.
The best way to keep your FICO score high is to be responsible with your money. It sounds like you have been up until this point, and I'd encourage you to continue by not borrowing money unless it's truly necessary.
posted by decathecting at 7:54 AM on October 25, 2006
The best way to keep your FICO score high is to be responsible with your money. It sounds like you have been up until this point, and I'd encourage you to continue by not borrowing money unless it's truly necessary.
posted by decathecting at 7:54 AM on October 25, 2006
FICO dings go away quickly, but I still wouldn't recommend maxing out your credit cards for this, since that would leave you no safety net if something went wrong and since the credit cards will probably have a higher interest rate.
Non-credit card revolving loans won't ding your FICO score anywhere near as much as maxing out your credit cards, and they're also financially better: more flexible, lower interest rates, and with much less onerous terms if something goes wrong. I'd recommend that.
But as others above mentioned, if you want the real experts, ask on the FatWallet finance forum.
posted by raf at 11:45 AM on October 25, 2006
Non-credit card revolving loans won't ding your FICO score anywhere near as much as maxing out your credit cards, and they're also financially better: more flexible, lower interest rates, and with much less onerous terms if something goes wrong. I'd recommend that.
But as others above mentioned, if you want the real experts, ask on the FatWallet finance forum.
posted by raf at 11:45 AM on October 25, 2006
This thread is closed to new comments.
posted by grouse at 2:46 AM on October 25, 2006