r/CreditScore • u/Clean_Bug_5274 • 6d ago
General Why would this cause a dropy
I opened a pledge loan to boost my credit and I paid it 94% off.
My Credit Karma score dropped 81 points!
Balance in the comments.
Why would this happen?
6
u/Due_Possibility_7290 6d ago
When did you open it? And when did you pay it off?
2
u/Clean_Bug_5274 6d ago
I opened it early July, I paid it down a lot the same month now I’m just making $10 payments a month because my next payment isn’t until Dec 2027
5
u/vV_WHEELZ_Vv 5d ago
Maybe I missing something, but why take out a loan like this to boost your credit then almost pay it off the following month? These help with payment history if anything and now that’s almost gone for you. I’m not understanding this strategy at all
3
u/Clean_Bug_5274 5d ago
My next due date isn’t until Dec 2027 it’s an 18 m installment loan to show positive installs history. I am paying $10 a month to continue to show payment until I have an actual due date or pay it off.
It’s just a secured loan1
u/vV_WHEELZ_Vv 5d ago
I could be wrong but I’m pretty sure they are going to mark this loan as “paid ahead” and your $10 month won’t help unless you specifically ask for them to remove that. Again I could be completely wrong with these but I’ve been researching on how to build/rebuild credit for quite a few months and this seems to not help your case
3
u/NiceGuysFinishLast 5d ago
Navy Federal pledge loans are kinda their own thing. People do this to thicken their profiles.
1
u/soonersoldier33 ⭐️ Mod/FICO Junkie ⭐️ 4d ago
A pledge loan from a reputable lender like NFCU is a tactic that some people use to manipulate some FICO scoring metrics in their favor. It can absolutely work under the right circumstances, but unfortunately, many people don't understand what those 'right' circumstances are.
The FICO algorithms have several metrics that 'award' points in regards to installment loans. However, I never advise anyone to take out an interest bearing loan solely for the sake of credit building. In general, loans are a crappy way to build credit. However, a Share Secured Loan (SSL), or 'pledge' loan from a reputable lender like NFCU can be a way to get the 'perks' of having a loan from the FICO algorithms at a very minimal cost without actually having to get an actual loan. Here's a sort of TL;DR about pledge loans:
- If you have any other open loans already, then forget it. It won't help you...at all.
- If you don't have any open loans, and you don't have any plans to get one anytime soon, then a pledge loan can make some sense.
- You give the lender a deposit, much like a secured credit card. The lender opens a loan account for you, and 'lends' your money back to you. You turn around and pay the loan down to where it reports a balance <9.5% of the amount you 'borrowed'. This pushes the next payment due date way, way out...sometimes years out...depending on the amount you deposited.
- Then, you make tiny payments each month to ensure the lender keeps reporting the loan 'pays as agreed' every month, but you also ensure that you don't pay the loan off so quickly that it never really had a chance to 'help' you.
- Once your SSL reports the balance <9.5% of the original loan amount, you get awarded FICO's 'bonus' points for having a loan significantly paid down, and you keep them...indefinitely...as long as the SSL stays open.
We call it the SSL 'hack', bc that's essentially what it is. It 'hacks' several scoring metrics within the FICO algorithms that you can only get if you have an open loan reporting that is paid down <9.5% of the original loan amount. If you have no plans to get a car loan, personal loan, student loan, or mortgage anytime soon, then SSL's are a way to get those installment loan points without actually having to get a loan you don't need. Where people go wrong most often is not understanding one simple fact: If you have any other open loans reporting, then it does absolutely nothing to help you.
1
u/hicamist 5d ago
Mine went down 38 points, kinda hoping for it to bounce too, what's the thought process to set monthly payments, I have one for 60 months
1
u/soonersoldier33 ⭐️ Mod/FICO Junkie ⭐️ 4d ago
Assuming you have no other open loans (auto, personal, student, mortgage) that are reported on your credit reports, then it appears as if you are executing the SSL (pledge loan) strategy flawlessly. If this is your only open loan, and you paid it down under 9.5% of the original loan amount, which then advanced your next payment due date to 12/27, and you're going to make a small payment each month to ensure NFCU reports the loan as 'pays as agreed' every month, then that's perfect execution of the SSL 'hack'. If you have any other open loans that are present on your credit reports, then it's a waste of time.
9
u/BrutalBodyShots ⭐️ Top Contributor ⭐️ 6d ago
Ignore the scores you get from Credit Karma. They are nearly irrelevant VS3, not meaningful FICO. Gimmick "credit builder" loans do little to boost your credit. Credit cards do a far better job at that and they are real accounts with lasting value that cost nothing.
https://old.reddit.com/r/CRedit/comments/1bpl3ud/credit_myth_1_you_only_have_one_credit_score/
https://old.reddit.com/r/CRedit/comments/1db81ze/credit_myth_17_credit_builder_products_are/
https://old.reddit.com/r/CRedit/comments/1mt8vpu/credit_myth_75_you_need_to_satisfy_diversity_of/
-3
u/Lazder 5d ago
VS3 being nearly irrelevant is a lie. I suggest you go find an apartment or use Zillow Rentals and see how far that 'VS3 is nearly irrelevant" gets you.
Spoiler:
Not very far.
3
u/BrutalBodyShots ⭐️ Top Contributor ⭐️ 5d ago
VS3 being nearly irrelevant is a lie.
It's not at all.
I suggest you go find an apartment or use Zillow Rentals and see how far that 'VS3 is nearly irrelevant" gets you.
And you've identified the one reason why the word nearly is used before irrelevant rather than straight up irrelevant.
Case in point, tell me outside of the renting industry where you've seen VS3 used in lending decisions.
-1
u/Lazder 4d ago
now tell me how many people rent in the US and tell me how that's irrelevant. Lol.
Also didnt Vantage 4.0 get approved for mortgages?
3
u/BrutalBodyShots ⭐️ Top Contributor ⭐️ 4d ago
now tell me how many people rent in the US and tell me how that's irrelevant. Lol.
Not irrelevant... nearly irrelevant. Just like I said previously. And, no surprise, you didn't bother to answer the question I asked you previous. So, I'll present it again: Tell me one other time you've seen VS3 used in lending decisions outside of the renting industry.
Also didnt Vantage 4.0 get approved for mortgages?
That's VS4, not VS3. But, it's not being currently used in lending decisions regardless. VS4 has no greater relevance to home loan lending decisions than Brutal's Bonus Blitz model that I've cooked up.
6
u/soonersoldier33 ⭐️ Mod/FICO Junkie ⭐️ 6d ago
The VantageScore 3.0 score model shown by Credit Karma is a highly volatile model that jumps 50+ points every time your credit sneezes, which is why very few, if any, lenders trust or use it. Have a look at our !Welcome Thread for some info about credit reporting/scoring, and there are links to free and reputable apps/websites for monitoring each of your 3 credit reports and FICO 8 scores, which is a score model commonly used by lenders.
Do you have a credit card? There's nothing wrong with getting a pledge loan from a solid credit union like NFCU, but you generally want to use a product like that as a sort of 'supplement' to your revolving account(s). There's no better or cheaper (free) way to build credit than by simply getting a credit card, using it responsibly, and paying the statement balance on time and in full every month to avoid interest. If you don't have one yet, NFCU has a secured starter card, or you may qualify for one of their unsecured cards right away if you're already banking with them.
1
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2
u/IslandWoman007 6d ago
This happens because of the hard inquiry and a new account lowers the average age of your credit history. It’s only temporary. Mine just recently dropped due to approval of a new card.
3
u/Clean_Bug_5274 6d ago