Should I do this?

Should I do this?
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#1

Good Afternoon(close enough) all,

I have been a very active participant on these boards and thought of something while reading a couple dozen articles. Here goes.

While reading the boards one article particularly comes to mind, how credit scores are figured. It basically mentioned the percentages of the factors that are used. One of the factors is credit mix. What I’m considering is, a secured card and credit builder loan.

My questions are, will a credit builder loan generate a hard inquiry? And, would having a secured card and credit builder loan be a helpful credit mix? A side note, I also have an installment loan line of credit but AM NOT utilizing it at this time.


#2

Hey @deadmanmoshing!

If you have a particular source of a credit-builder loan you’re considering, the best thing is to just verify that it does not do a hard credit inquiry. My understanding is they do not, because they’re already designed to limit risk to the lender — you don’t get the money until you’ve paid the loan off. So there’s no need for the lender to use a credit check as a way to limit its risk. However, it’s always better to simply ask than assume. (Here’s our guide to credit-builder loans, such as where to find them and how to manage them.)

As to your second question, the mix of your credit accounts matters much less than your payment history and how much of your available credit you’re using. So, yes, having both a secured card and a credit-builder loan may help the “mix of credit” factor — but, more importantly, that gives you two accounts with which to demonstrate good payment habits.

Sounds like you’ve already found our story on what makes up your credit score. :smile: So you know that simply paying all credit accounts and bills on time every time is the most powerful way to build credit.


#3

Seconding everything @khinson told you–you can build credit with one or the other, but it’s best to have both revolving credit (credit/secured cards) and installment loans.

I’m not sure what you mean by “installment loan line of credit”? Usually it’s one or the other: a revolving line of credit that you can tap and pay back, with variable interest rates, or an installment loan that you pay off over time, usually with a fixed rate and payment amount. If it’s a LOC, it could be helpful to your scores to occasionally use it and pay it back to show some activity.


#4

Thanks @khinson & @lweston for the sound feedback. Sorry I’m just getting back to this, to reply. @lweston the installment loan I referred to is, Fingerhut. Just a point of information, I haven’t done anything yet on a credit builder loan or secured credit card. I’m just biding my time on doing that. But, I want to be well informed about my options.


#5

@khinson not only am considering the credit builder loan and secured credit card but, also the installment loan line of credit(Fingerhut). Not only am I considering it for mix but also for length of credit, for credit history length(how long accounts are open). I’m aware of the negative impact on my credit score with accounts being closed. Yes I’ve done my homework! Now it’s time to put the wheels in motion.


#6

That’s great! If your main goal is to get a card that you intend to keep open indefinitely (yay for long age of credit!) then for sure you’ll want to research and choose wisely.

Make sure the company you go with for the secured card has a way to graduate to an unsecured card (see our roundup of secured cards here).

Also consider whether the issuer has a robust suite of cards in case you eventually want to do a product change — where you ask to change your card to another one from the same issuer in order to get better terms or rewards without losing your credit history.


#7

Fingerhut’s a fairly expensive way to build credit, @deadmanmoshing, because the product prices are so high. By contrast, the credit builder loan will actually leave you with a nice little pile of cash, and the secured card ultimately doesn’t have to cost you anything–if you pay off your balances in full, you won’t have to pay any interest, and eventually you can get your deposit back.

We’re really happy you’re sharing your journey to better credit with us. Let us know if there are any other ways we can help!


#8

Hi @deadmanmoshing,

First I have to say I think it’s fantastic that you’re looking into an installment loan as a sensible way to add to your credit mix. Generally speaking, that can be a strong move towards building better credit.

Fingerhut does a great job of advertising and they position themselves to look like a “smart” choice when it comes to installment loans. But in my research I found the opposite to be true and I wanted to bring the reasons why to your attention.

When I dug in and compared prices on various items, I found that across the board Fingerhut’s prices were much higher than Amazon and Wal-Mart for the exact same items. Here is my in-depth review of Fingerhut. Plus, Fingerhut added in other charges like shipping and sky-high interest rates. They do a pretty good job of obscuring the real cost of items.

If you’re looking to add an installment loan to your credit mix, the Fingerhut FreshStart Installment Loan is easy to get approved for, but in exchange for that ease you’ll ultimately end up paying twice as much for the items as you’d find elsewhere. As @lweston said, credit builder loans will be far easier on the wallet. I hope this helps!

Robin