This is a follow up on the episode about installment loans contributing to the weightiness of your borrower profile. Today, Merrill Chandler shows how the system can support you in tripling fundability points for every single installment loan. Educating us on maximizing loan value, he shares insider secrets that allow such loans to blow up in the most powerful and positive way. Become eligible and take home the most amount as Merrill discusses enhancing your loan value when FICO can contribute score points, and so much more!
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Maximizing The Value Of Your Loans
We’re going to be talking about how the system can support you in tripling the number of fundability points you get for every single installment loan that you’ve got, car loans, mortgages, student loans, etc. We’re going to knock it out of the park again. What is it about installment loans? We discussed before how installment loans contribute to the heft, the ballast, the weightiness of your borrower profile and therefore your fundability. We’re going to talk about some insider secrets, things that most of us aren’t aware of that are going to contribute to letting those installment loans just blow up in the most powerful, positive way additional fundability points. How to use the system to create the most amount of juice? We’re going to use auto loans here as an example, but let’s talk about some of the features and the fundability characteristics of installment loans.
First, when we’re back at FICO, in this case, Brad and I were talking about the installment loan contribution with Ethan Dornhelm. He’s the chief scientist at FICO. We’d known certain parts of this, but he confirmed for us that installment loans don’t contribute to your score until the sixth payment. Because you’re penalized on FICO and on your fundability for quick payoffs. How many of us have, for whatever reason, don’t want to be in debt? We purchase a car. Many of us have the opportunity through bonuses, tax returns or just some windfall that allows us to have the opportunity to pay that car off. FICO knows this and remember, there are the 3, 6, 12 and 24 months increments of the 24-month lookback period. FICO doesn’t even contribute score points until the sixth payment reports because they want to penalize for quick payoffs.
The next feature of loans is that they should stay open for 24 months. Remember, you’re getting sixteen times the value of the three-month increments if you keep a behavior going for 24 months. FICO told us that it should stay open for at least 24 months. Anything more than 24 months, then the contribution to the scoring and fundability begins to flatline. That’s what we call the time factor. From month 24 on, the account contribution flatlines. We also learned that anything less than a 50% balance on an account is the balance factor and its point contribution flatlines. The perfect installment loan is an installment loan that is above 50% and less than 24 months old, but that at 24 months you should refinance, re-lease, renew that loan and keep it above 50%.
We put in here the thick file and a thin file. What we mean by thick file is all the accounts, open or closed, positive or negative. If there are twenty or more tradelines on your borrower profile, then you have what underwriting measures as a thick file. That means you’ve done enough credit. You’ve been around. The problem is we talked about the travel hackers and the people who don’t know what they’re doing with their revolving account, many people open and close credit cards. Those do not help you like having installment loans that are open for 24 months paid off and a new loan begun. Loans are what we want to fill up these tradelines.The perfect profile is three credit cards with no closed revolving accounts. Click To Tweet
The perfect borrower profile such as for my daughter when I was building her borrower profile for her. We wanted three credit cards, no more. You’re going to have up to five without any penalties. Three credit cards are the minimum, which means you need seventeen additional loans. The perfect profile is three credit cards, no closed revolving accounts. The installment loan, mortgage, a refi. Installment loans do count when they’re sold off when mortgages are sold off. If it goes to two or three lenders over the course of two or three years, those each count as a tradeline. All of your installment loans, your personal loans, the Winnebagos, the car loans and the student loans, mortgages, all count towards this thick file.
A thin file is any file that’s less than twenty trade lines. I want us to remember that thick file, thin file, metric because it’s going to help. I’m going to show you how to use your installment loans to get to that twenty files as soon as possible and have a hefty, powerful and meaningful installment loan portfolio on the process. Let’s take a look at an auto loan. A traditional loan goes something like this. We’re giving you 72 months, that’s six years on an auto loan. They go all the way to 84. You can have all the way down to 36. The idea is that you engage the loan at month zero and then you pay that off for 72 months in this instance.
That’s 100% of the possible credit score points for that loan. What most people don’t know is that FICO says that after 24 months, the balance of the points flatlines. They front-load points for that first 24 months. FICO front-loads points in the first 24 months and then the balance of those points is spread evenly across through the remaining four years. I do not know and I’ve not received, we’re going back to FICO again. One of the questions we’re asking is what that front-loading looks like. Before, in earlier versions of the software, the first twelve months, you got 40% of the points and the second twelve months, you’ve got another 30% for a total of 40% of the possible points are going to be delivered to the first 24 months, which fits the 24-month lookback period and then it flatlines. All the points just even out. In this case, four years.
Let’s talk about optimize. This is you knowing the rules of the game. The same thing happens. At month zero, we purchased or leased a vehicle. In 24 months, let’s pretend it’s still true because there is some heavy frontloading going on it. It used to be 70% of the possible points. I do not know and always candid about what I know for sure and what the working hypothesis is. Let’s call it 70% of the points goes to month 24. Instead of continuing out for the next four years, I teach my clients and now I’m teaching you that at month 24 we repurchase, refinance or re-lease that vehicle. A new vehicle. In my case, I love leases. I have 24 months, sometimes they go 36 but I do 24-month leases in order to take advantage of this process. You can also refinance the same vehicle and you can repurchase, depending on what you’re capable of doing. If we do that, then the next 24 months, we front-load those very same points. The final period is we repurchased, refinanced and re-leased in that second two-year period.
As a result, we end up with three loans instead of one. All of which contribute the highest or maximum number of optimization and fundability points, the highest number of FICO score points. We get three loans instead of one in the exact same period. This counts towards the maturity of your file, that thick file. This is six years, so over the course of eighteen years, it’s going to add. Remember, this is just the loans. This doesn’t account for your student loans, mortgages and the other optimization loans. We talked previously that you need at least one mortgage, one auto loan and two to three additional loans at any one time. I don’t recommend this with mortgages unless it serves you to refinance, then we don’t do this with mortgages. You can do this with student loans. If you have ten student loans, at 24 months you can consolidate three, three and three for a total of nine of those ten student loans to become three loans. Do that for 24 months.
Consolidate down again into two loans or one loan. There’s a number of strategies and you’d need to talk to your advisor team or go to the bootcamp to get more details on all of us. Go to GetFundable.com and click on the bootcamp to find out how to be bombarded with all of this actionable intel. What I’m telling you is this is the process that you can create multiple loans and because it stays within that 24 month lookback period and it’s above 50%, you end up with the highest points available for fundability and for FICO. In a sense, that literally is 300% of the fundability points during the exact same period.
People ask me all the time, they’re like, “What’s the difference between a lease and an auto loan?” There is one material difference because every auto loan has a limit and a balance. That can calculate utilization, pay down rates and it’s going to send a positive or negative message to your lender. Additionally, if you’re going to refinance or re-lease that every 24 months, you’re going to be able to create a reputation with your current lenders who well send messages out in the front. That 24-month lookback period is vital for leases and for loans. The only difference is the leases are four a lower amount. Let’s say it’s a $50,000 Jeep Grand Cherokee. If I finance $50,000, then what’s positive is I’m going to have a $50,000 loan on my profile, which sends an amazing message to lenders.
If I lease it, then I’m leasing the first two years or three years, which may end up being $20,000 or $30,000 of that $50,000 value. I’m paying for the prime years of the life of that vehicle, so my limit is going to be lower. If I did a three-year lease and so it was around $21,000. My loan shows a $21,000 loan amount and then the balance continues to drop. Loans are better if you’re looking to establish high thresholds for the amount of loans that you can carry or handle, which contributes to business fundability. I prefer leases simply because it’s a lifestyle choice. I like the new car every 24 to 36 months. I know that anything after that entire payment, I’m not getting optimization points for carrying a loan to term. I get a lease, 24 to 36 months. I’m in the optimal period of garnering points for that installment loan.
That’s our advanced strategy for optimizing your loans so that you can create a mature thick file and not waste time. Your time to point ratio is the highest it could possibly be if you repurchase, refinance or re-lease every 24 months. These are ideas to toy around with if you have the means to do so. Buyer beware, I only encourage strategic debt and I don’t want debt to be a part of your process if you cannot afford to make the payments. I’m not about getting you strapped. I’m not about a debilitating you or putting you in a financial cage. Be wise with these things. I don’t know if I’m giving a revolver or putting it in the hand of a two-year-old because I don’t know your sophistication level. I don’t know how you have the ability to execute on this, but it is vital that you’d be wise and talk to your other advisors or go to GetFundable.com, join the bootcamp. Qualify for a strategy session for your fundability and become a client. Make sure that you can have a team of people who are going to support you every step of the way and customize it to your particular situation.
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