Odd credit issue? (took out loan for ring and credit drops 90 pts?)

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TheBogleWay
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Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by TheBogleWay » Sun Aug 19, 2018 8:12 pm

Hi All,

I just recently got engaged. I splurged on a ring, which is abnormal for me/us as it's $20k, but that's less than a months income and not too big of a deal. Don't judge me... we're normally very very big savers and live frugal.


The store had a 0% interest option for a 12 month loan, so naturally I assumed my funds would be best kept in stocks/investments as I pay this ring down over the next 12 months. It's not a concern financially so figured I'd do that.

What I didn't expect is how my credit would react. I had finally just passed the 800 mark about a month ago, and I log into Credit Karma today to find that my two reports had dropped 85 and 90 points each. That's a VERY significant drop I would think. I don't have a lot of debt otherwise, car loans total $30k or so and that's it, and again same philosophy there I used a car loan to keep money in investments (higher expected interest).

Is it normal for a report to drop 90 points for a $20k zero interest loan for the ring?

Can I expect it to change a lot when I have it paid off in 12 months?

TheBogleWay
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by TheBogleWay » Sun Aug 19, 2018 8:26 pm

After a quick Google search, I may have found out what happened.

It turns out that instead of a more traditional loan, what they do is use Wells Fargo and essentially open up a credit card. So, it instantly looks like I took a 20k credit limit credit card and maxed it.

I'm not entirely happy about that, but I can't decide what's better, keeping that 20k invested and just dealing with this/making payments or cancelling and paying in cash.

Also, does anyone know if this would be good or bad for my overall credit if I paid it off in 12 months, good payments, and then closed the account?

BeneIRA
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by BeneIRA » Sun Aug 19, 2018 8:34 pm

There have been three to four posts in the past week about a credit score "mysteriously" dropping. What do almost all have in common? Credit Karma. Credit Karma is not a FICO score. It is a Vantage 3.0 score. Virtually no one uses that score for anything of any value, they use FICO. If you have access to Discover, Citi, Barclays, or American Express, they provide a flavor of FICO score, which is of value. FICO scores do not whipsaw like that. Anecdotally, Credit Karma is anywhere between 20 and 80 points off of what the true FICO score is.

In all likelihood, your FICO score did go down because you have $20,000 more debt than you did. Yes, those deals are usually a different breed of credit card. As you pay it down and the account ages and shows timely payments, your score will go back up. If you pay it off within the year, the "credit card" will go down to a $0 balance and your score should jump back up. Everything will be just fine.

EDIT: Congratulations on the engagement. Sounds like some ring.

TheBogleWay
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by TheBogleWay » Sun Aug 19, 2018 8:59 pm

BeneIRA wrote:
Sun Aug 19, 2018 8:34 pm
There have been three to four posts in the past week about a credit score "mysteriously" dropping. What do almost all have in common? Credit Karma. Credit Karma is not a FICO score. It is a Vantage 3.0 score. Virtually no one uses that score for anything of any value, they use FICO. If you have access to Discover, Citi, Barclays, or American Express, they provide a flavor of FICO score, which is of value. FICO scores do not whipsaw like that. Anecdotally, Credit Karma is anywhere between 20 and 80 points off of what the true FICO score is.

In all likelihood, your FICO score did go down because you have $20,000 more debt than you did. Yes, those deals are usually a different breed of credit card. As you pay it down and the account ages and shows timely payments, your score will go back up. If you pay it off within the year, the "credit card" will go down to a $0 balance and your score should jump back up. Everything will be just fine.

EDIT: Congratulations on the engagement. Sounds like some ring.
I appreciate your smart response instead of ripping me on the ring... maybe because I feel like I deserve a slap on the hand for that purchase lol but it's way out of our nature.


That's good news about the score. I don't plan on buying a house in the next 12 months so maybe I'll just leave it as is. I guess my main question now is once I'm done with the "loan" will my number go back up as high as it was last week. I really want it to be 800+. To me, it would seem like a positive to pay this off with good payments, but the internet is saying that it would be a "closed credit line" which is also bad for credit so overall I'm hoping this isn't negative.

AlphaLess
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by AlphaLess » Sun Aug 19, 2018 9:06 pm

TheBogleWay wrote:
Sun Aug 19, 2018 8:26 pm
It turns out that instead of a more traditional loan, what they do is use Wells Fargo and essentially open up a credit card. So, it instantly looks like I took a 20k credit limit credit card and maxed it.
Ouch. Looks like a highway robbery to me (as far as credit goes).
If you have any of the following credit cards:
- Citi
- Discover
- Amex
- Chase
- US Bank

You can get a free FICO score, but not on demand.

You might be able to get a cheap FICO score from myfico.com by using one of their cheapest programs.

There is nothing wrong with a Vantage score. IF Vantage and FICO are correlated, then you will also have a drop in the FICO. Maybe not 90 points, but definitely a drop. Several reason:
- a new inquiry (10-ish points if you don't have too many),
- a new credit account (probably 10-15 points, but will recover in 6 months),
- 100% maxed out card. This is the real baddie.

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vineviz
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by vineviz » Mon Aug 20, 2018 8:51 am

TheBogleWay wrote:
Sun Aug 19, 2018 8:59 pm
BeneIRA wrote:
Sun Aug 19, 2018 8:34 pm
There have been three to four posts in the past week about a credit score "mysteriously" dropping. What do almost all have in common? Credit Karma. Credit Karma is not a FICO score. It is a Vantage 3.0 score. Virtually no one uses that score for anything of any value, they use FICO. If you have access to Discover, Citi, Barclays, or American Express, they provide a flavor of FICO score, which is of value. FICO scores do not whipsaw like that. Anecdotally, Credit Karma is anywhere between 20 and 80 points off of what the true FICO score is.

In all likelihood, your FICO score did go down because you have $20,000 more debt than you did. Yes, those deals are usually a different breed of credit card. As you pay it down and the account ages and shows timely payments, your score will go back up. If you pay it off within the year, the "credit card" will go down to a $0 balance and your score should jump back up. Everything will be just fine.

EDIT: Congratulations on the engagement. Sounds like some ring.
I appreciate your smart response instead of ripping me on the ring... maybe because I feel like I deserve a slap on the hand for that purchase lol but it's way out of our nature.


That's good news about the score. I don't plan on buying a house in the next 12 months so maybe I'll just leave it as is. I guess my main question now is once I'm done with the "loan" will my number go back up as high as it was last week. I really want it to be 800+. To me, it would seem like a positive to pay this off with good payments, but the internet is saying that it would be a "closed credit line" which is also bad for credit so overall I'm hoping this isn't negative.
If you pull a real FICO score (I use myFICO.com but there may be cheaper options), you’ll like get access to a pretty accurate score simulator. It will predict your score given a variety of actions you can take (eg nothing, pay off the card, close the account, etc).

You may find your score is still so higher that you already qualify for the best mortgage rates, but if not you can objectively figure out how to get there.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

chevca
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by chevca » Mon Aug 20, 2018 9:14 am

TheBogleWay wrote:
Sun Aug 19, 2018 8:12 pm
Hi All,

I just recently got engaged. I splurged on a ring, which is abnormal for me/us as it's $20k, but that's less than a months income and not too big of a deal. Don't judge me... we're normally very very big savers and live frugal.
I won't rip you for the ring. If it's less than a month's pay, it's certainly within reason for an engagement ring, IMO.

But, the idea of taking a loan out for something that's less than a month's pay just to keep that money invested makes no sense to me. We're not talking a mortgage amount and 15 or 30 years to consider here. It's something of relatively minor cost to you and whether to pay cash, or keep money invested for a year. Over a year's time, there's going to be little difference in the long run if you pay cash for something or keep less than a month's pay invest during that time. Your savings rate is likely to dwarf the difference between the two options.

Pay the ring and the car off ASAP and see what your credit score does. Out of cash, or from pay checks is probably best.

mmmodem
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by mmmodem » Mon Aug 20, 2018 9:17 am

With an 800 FICO score, it will be a negligible effect on your credit whether you pay it off full or monthly or at the end. There's just so much room for improvement and you're already at the top.

Contrary-wise, because you have a high score, a sudden increase of $20k to your revolving utilization is a big deal. It is unusual to drop that much but as others have stated, that isn't a FICO score. I would speculate you have very low credit limits. For example, you have 2 credit cards with a total credit limit of $5000 and you use $1000 every month. That's means your revolving utilization is 20%. With the ring, now your revolving utilization is 84%. This is just a speculation, of course.

Given you won't need your credit for the next 12 months, I'd just pay it off the normally over the next 12 months as you have planned. Your score won't change much if at all. If you do want to buy a home within that time, just pay off the ring within 60 days so that the 3 bureaus have enough time to update your credit report.

ResearchMed
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by ResearchMed » Mon Aug 20, 2018 9:35 am

mmmodem wrote:
Mon Aug 20, 2018 9:17 am
With an 800 FICO score, it will be a negligible effect on your credit whether you pay it off full or monthly or at the end. There's just so much room for improvement and you're already at the top.

Contrary-wise, because you have a high score, a sudden increase of $20k to your revolving utilization is a big deal. It is unusual to drop that much but as others have stated, that isn't a FICO score. I would speculate you have very low credit limits. For example, you have 2 credit cards with a total credit limit of $5000 and you use $1000 every month. That's means your revolving utilization is 20%. With the ring, now your revolving utilization is 84%. This is just a speculation, of course.

Given you won't need your credit for the next 12 months, I'd just pay it off the normally over the next 12 months as you have planned. Your score won't change much if at all. If you do want to buy a home within that time, just pay off the ring within 60 days so that the 3 bureaus have enough time to update your credit report.
On the off chance that you do have low credit limits on your existing cards, you might want to consider requesting increased limits. If you do that, take it slow, so it doesn't look like you are suddenly increasing all of them a lot, as though you are about to borrow a large amount, etc.

If you are getting married, you may start having more ongoing expenses, and it would probably be inconvenient if you needed to split a larger purchase on 2 or 3 cards, plus hitting those limits, etc.

RM
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chevca
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by chevca » Mon Aug 20, 2018 9:47 am

mmmodem wrote:
Mon Aug 20, 2018 9:17 am
With an 800 FICO score, it will be a negligible effect on your credit whether you pay it off full or monthly or at the end. There's just so much room for improvement and you're already at the top.
HAD an 800 score... OP said they finally reached that level a month ago. Now it dropped, so that would be 'with an 710 score now'.

OP, something to keep in mind... the mortgage folks go off some other credit score than what you see on Credit Karma and that's usually 40 to 50 points lower than what you see. So, planning to pay this debt off over a year and then buy the house (if that's the plan, I don't know) might not be a good idea. It won't leave much time for your score to improve before getting a mortgage. Although, your score will improve over the year. But, the timing of it being as good as it can be might be off before applying for the mortgage.

I just don't see it worth playing these games for things that cost less than a month's pay, but that may be just me.

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Watty
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by Watty » Mon Aug 20, 2018 10:12 am

TheBogleWay wrote:
Sun Aug 19, 2018 8:12 pm
I splurged on a ring, which is abnormal for me/us as it's $20k,
Just a tip, adjusted for inflation my wife's engagement right was a less expensive but she started not wearing it a lot of the time because she did not comfortable with something that valuable in plan view. Occasionally strangers would make a well intended comment like, "That is a nice ring." She was concerned that it was drawing attention to her and might cause her to get mugged or something. This was an especial concern when we are traveling so she would leave the wedding ring at home. She would also take it off when she was doing things like working in the garden.

This caused caused several problems.
1) Several times the ring was be misplaced and there would be panic until it was found.
2) It seemed odd for a newlywed to not be wearing a wedding ring, and she was asked at least once if there was a problem with the marriage. Other people probably wondered that too.

The solution was that we have a safe that she puts the ring in when she is not wearing it so it will not be misplaced. We also got her what we jokingly call the "B" ring which is just a gold band that matches mine and she will wear it when the diamond ring is in the safe.

magicrat
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by magicrat » Mon Aug 20, 2018 10:58 am

Make sure you get insurance on that rock.

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dm200
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by dm200 » Mon Aug 20, 2018 11:16 am

TheBogleWay wrote:
Sun Aug 19, 2018 8:26 pm
After a quick Google search, I may have found out what happened.

It turns out that instead of a more traditional loan, what they do is use Wells Fargo and essentially open up a credit card. So, it instantly looks like I took a 20k credit limit credit card and maxed it.

I'm not entirely happy about that, but I can't decide what's better, keeping that 20k invested and just dealing with this/making payments or cancelling and paying in cash.

Also, does anyone know if this would be good or bad for my overall credit if I paid it off in 12 months, good payments, and then closed the account?
Yes - that is what I was about to post.

You still have a high score - and, as you pay down the loan, the score will go up.

If you have other cards, maybe increasing the limit on those might lower your utilization percentage?

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dm200
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by dm200 » Mon Aug 20, 2018 11:23 am

Watty wrote:
Mon Aug 20, 2018 10:12 am
TheBogleWay wrote:
Sun Aug 19, 2018 8:12 pm
I splurged on a ring, which is abnormal for me/us as it's $20k,
Just a tip, adjusted for inflation my wife's engagement right was a less expensive but she started not wearing it a lot of the time because she did not comfortable with something that valuable in plan view. Occasionally strangers would make a well intended comment like, "That is a nice ring." She was concerned that it was drawing attention to her and might cause her to get mugged or something. This was an especial concern when we are traveling so she would leave the wedding ring at home. She would also take it off when she was doing things like working in the garden.

This caused caused several problems.
1) Several times the ring was be misplaced and there would be panic until it was found.
2) It seemed odd for a newlywed to not be wearing a wedding ring, and she was asked at least once if there was a problem with the marriage. Other people probably wondered that too.

The solution was that we have a safe that she puts the ring in when she is not wearing it so it will not be misplaced. We also got her what we jokingly call the "B" ring which is just a gold band that matches mine and she will wear it when the diamond ring is in the safe.
Good ideas!

I still (even after 40+ years of marriage) have the habit of looking at women's ring fingers and often notice "changes".

On the topic of wedding rings, I recall a conversation I had with a bank branch manager that guys were hitting on the young female tellers. So, the manager bought some plain gold wedding rings - and give them to these female tellers. When a guy would try to hit on them, they would smile and point to the "wedding" ring on their left hand. Problem solved.

daveydoo
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by daveydoo » Mon Aug 20, 2018 11:32 am

magicrat wrote:
Mon Aug 20, 2018 10:58 am
Make sure you get insurance on that rock.
Safest place is on her finger. With OP's resources, he can replace it in a heartbeat.

There are a few threads about insuring jewelry but it's generally not worth it and often does not cover "mysterious disappearance" (as opposed to getting broken into or getting held up).
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

ResearchMed
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Re: Odd credit issue? (took out loan for ring and credit drops 90 pts?)

Post by ResearchMed » Mon Aug 20, 2018 11:34 am

daveydoo wrote:
Mon Aug 20, 2018 11:32 am
magicrat wrote:
Mon Aug 20, 2018 10:58 am
Make sure you get insurance on that rock.
Safest place is on her finger. With OP's resources, he can replace it in a heartbeat.

There are a few threads about insuring jewelry but it's generally not worth it and often does not cover "mysterious disappearance" (as opposed to getting broken into or getting held up).
That's the point of getting a policy that *does* include "mysterious disappearance".

RM
This signature is a placebo. You are in the control group.

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