I want to build good credit, is this a good idea? (please read details)?

[zeitgeist057]

My current credit score hovers around 800. Sometimes up to 811, other times dropping to 798. I have about a dozen credit cards and pay them all in full each month. I rotate through them to keep them all active and in use.

When I check my credit score, I often get advice from the "credit manager" feature that my credit score doesn't have any long term loans. It advises that I take out a loan and make consistent payments to improve my credit score.

When COVID came, my small business qualified for an SBA disaster relief loan, so I took it. I now have the ability to pay the loan back in full, but I am considering NOT paying it in full, and just making the minimum payments ($22) for the next 20-30 years. It's so low I won't miss it and I am hoping it will improve my credit score.

Will this plan work? Is it a good plan? I did the math on the interest and it will cost me about $2000 for 25 years. I think that's a very low amount of interest, and also that $2500 today with inflation will be equivalent to $5000 or more in 25 years.

[GoodGuyBreakingBad]

My advice is what I learn with the SBA disaster relief loan... You want to pay the loan payment more than asked for example your payment is $22.00 a month, instead pay $30.00 a month, if your payment is due the 19th of every month, instead pay it on the 1st or 10th of every month... These are some things I learned when I took out a small bank loan with Keybank for $250.00 them... I pay $20.00 before the due date but I should really pay more than what's due but from what I learned that is what I would do?

[zeitgeist057]

That's good advice if you are trying to limit the amount of interest, pay off the loan quickly and be done with it. But even better would be just to pay in full and pay no interest. But my situation is that I am actually *wanting* a long term loan and this seems kind of perfect, since it's super low payments, like literally less than some meals, and also a low interest rate.

[GoodGuyBreakingBad]

@zeitgeist057 Yeah glad my advice might help some, I say do what you feel
increases your credit score but that's what I'm doing with this loan with Keybank
make my monthly payment in advance this helps so much and I might consider
to make more of a payment this helps with interest too

[GoodGuyBreakingBad]

Thanks For Most Helpful Guy :)

[matchrestore]

Unless you are running your business as an independent contractor (using your SSN as your Tax ID) that SBA loan isn't tied to your credit score at all. There's no harm in paying it off over time (other than interest cost), but it's not going to help your credit. Your credit is already really high, so I wouldn't worry too much about it, but next time you buy a car, consider financing a portion of it to build that portion of your credit history more.

[zeitgeist057]

I'm a sole proprietorship. I registered for a FEIN for the business, but file my taxes as an individual with a Schedule C for P&L for the business (it's an Amazon FBA).

[midnightmoon05]

You have excellent credit score. Any reason you need it to be higher?
did you need the SBA loan?

I have diff. view on loans... it’s to take none.
I know the rate is really low... still if I don’t need to borrow, I just pay in full.

[zeitgeist057]

I don't really know, I just thought it's best to have the best credit score you can. Like if I want to buy a house, I don't know the specifics but I heard you can "buy points" or if your credit score is good you can get a lower rate. So for example if I can boost my credit score to 850 then maybe I get.5% off on a home loan for $300,000, which ends up saving me $20,000 over the life of the loan. I thought it would be worth it to pay a small amount in interest now. I looked into loans previously even though I don't need one, just to build credit and the best rate I found was around 7%. The SBA loan is 3.5%.

The other part of that is I am just going to invest any money I don't pay the loan with. So rn, if I put it in the stock market or cryptocurrency, and it grows by 8% or more, or really more than 3.5%, then it's better to have it invested than to pay the 3.5% loan with it.

[zeitgeist057]

most of my investments have been growing between 5% and 10%.

[loves2learn]

Your score will go down if your debt increases due to not paying the cards in full. 800 is a great score. Try to stay there.

[zeitgeist057]

I always pay my credit card bills in full each month and owe nothing. But my "Creditwise" credit advisor program states:

Credit Score Factors:

(a bunch of good stuff, but then this negative:)
You don't have enough relevant first mortgage account information

This is because I don't have a mortgage (I live on my yacht in the harbor, and paid for everything in full).

But they are saying my credit score would go up if I had a mortgage, because it would show a new type (installment) of credit and build history. I think that's what it means, anyway.

[loves2learn]

Makes sense. I have a mortgage and my score hovers around 825. I pay our 2 cards in full always.

[zeitgeist057]

see that's what I'm thinking I could boost by 25 points if I had a long term loan payment hopefully.

[loves2learn]

Very possible! But don’t sacrifice paying your cards off either. That could have a reverse effect.

[zeitgeist057]

No worries there. Not bragging, just the facts are I have plenty of money in savings, investments, and monthly income; I'm not struggling to get by. I have all my cards on auto pay to pay the balance in full and it is deducted from my checking account monthly and will never come close to over drafting my account.

I never carry a balance unless a card offers me 0% fees/ 0% interest at which point I say, why not? I borrow the money and invest it. I pay 0% interest and gain whatever I make with the investments.

The reason I'm asking about the loan is because I really don't need the money, and could pay it off in full tomorrow. I'm just under the impression it's a better path to keep the debt since the interest rate is lower than the returns on my investments and it hopefully will increase my credit score even further.

[loves2learn]

I auto pay all my bills including the cards. We are doing just fine too.

[zeitgeist057]

It's a nice feeling :) I came from being broke and sleeping on friend's couches to financial stability so I definitely appreciate not stressing about $

[loves2learn]

@zeitgeist057 well done, sir! I mean that sincerely. :)

[zeitgeist057]

Thank you :)

[loves2learn]

You’re welcome. :)

[exitseven]

You have excellent credit already. Maybe pay the SBA loan off in five tears. That should be long term enough. Usually thy look at something like a car loan when making these determinations.

[zeitgeist057]

I was thinking about this as an option, thank you! Maybe pay off half of it now, then let the other half slowly trickle out of existence...

[exitseven]

If you try to get a mortgage in the future, if you have debt it will actually count against you. Better to have it off your sheet.

[zeitgeist057]

I have funds to pay it off in full at any time, so if I plan to borrow for a mortgage I can just pay it off a month or six before I apply for the loan.

[exitseven]

OK. You have excellent credit regardless.

[zeitgeist057]

Thanks. It might be silly of me to try to get it to be better, it's just a thing with me I guess always pushing for the next level.

[David_Bayer]

I'm not sure what that means.

[zeitgeist057]

Your credit score is a combination of factors, including:
Payment history
Age of oldest account/length of credit history
How much you owe
Types of credit you have (revolving, installments, open accounts)

I have a good credit score but interested in making it better. My current "weakness" is my score is based on my credit cards as I have no installment (loan) credit. I'm asking if keeping a loan unecessarily "alive" is a good idea to get a better credit score. Basically, borrowing $5K from the government and paying them back $8K over the next 30 years @ $22/month. I could just pay the $5K tomorrow and be done with it, but then I miss my opportunity to show "installment credit" on my credit report for a long (30 year) span.

[midnightmoon05]

When you eventually needed to get a loan for a house. They will only need to see your credit score. Anything with 750-800 and up is excellent. You will have no prob. getting a loan.
Why pay $3k to anyone? It's a lot even for 30 years.

I have never had any type of loans. I paid off all my credit cards and only have 2 the most at a given time just in case.

I also paid cash for my house. Most Americans have been "trained" to get loans.
If you have enough money to build wealth, start now with real estate. But must be smart about it.