Is financing a good thing?

[newstart2010]

Once the credit is cleaned up, and we are able to get credit when we need it, is it smart to try and finance everything we can, and then pay it off quickly so we have good trade lines?  Things like electronics, or furniture, or a vacation...  We would have the cash for it, but we have the ability to finance it so we get a new trade line, then we pay it off after a few months.  Good, bad?  initially harmful to the score but eventually a great thing?  

[haulingthescoreup]

If you do this, I'd advise paying it off immediately. There is no reason to carry a balance over several months and pay interest, if you have the cash.

Be careful what financing vehicle you use. Rather than cluttering up your credit reports with a bunch of one-time deals, I'd lean more toward spending your clean-up period researching different CC's and finding which ones would reward you most for usage. Some cards are great for individual users but nothing much for others. For instance, if you wanted to use American Express Blue Cash for literally every purchase, you'd get some good rewards, but not if you didn't pump a lot of money through it.

Also, be sure to read up on the impact of continually opening new accounts on your AAoA (average age of accounts.) This can really kill your AAoA, and nothing but the passage of time will cure it. The ding of inquiries and of new accounts passes after 6 months - 1 year, but waiting on that AAoA to recover is painfully slow.

[Jazzzy]

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@newstart2010 wrote:

Once the credit is cleaned up, and we are able to get credit when we need it, is it smart to try and finance everything we can, and then pay it off quickly so we have good trade lines?  Things like electronics, or furniture, or a vacation...  We would have the cash for it, but we have the ability to finance it so we get a new trade line, then we pay it off after a few months.  Good, bad?  initially harmful to the score but eventually a great thing?  

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We don't finance these things. As said above, I wouldn't want all those new accounts.

We have a couple of good rewards cards that we use...and use...and use. That's how we "finance" everything. We then PIF before the statement cuts. In that way we are utilizing available credit (so that no one comes along and closes our cards for nonuse), plus we get pretty darn lucrative rewards.

[newstart2010]

Ok good to know.  I was unsure if just building an amazing history with the revolving bank cards with rewards was enough, or if it was good to have consumer credit on there and paid off. 

[Jazzzy]

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@newstart2010 wrote:
Ok good to know.  I was unsure if just building an amazing history with the revolving bank cards with rewards was enough, or if it was good to have consumer credit on there and paid off. 

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It certainly doesn't hurt to have consumer credit that you have paid off. I'd just do it very selectively. An installment loan for a car fits the bill. If you can pay your credit cards in full anyway, I'd get a good rewards card, reap those rewards, and pay the balance. You don't need to show that you financed household goods, and you need to be careful not to fall into that "consumer finance" category that can hurt your score.

[daisyduke]

while you do have to consider interest rates and your AAoA - here's the flip side for your consideration and IME: for several years, I paid cash for everything. Guess what this did for my credit? nothing! I have huge gap in my credit history now.   I wish I would have for example, used Care Credit for my teeth, instead, I handed over my debit card and paid cash...Granted, I didn't incur debt for several years, but I didn't do myself any favors for building my credit by not financing certain things. I could have a positive TL from Care Credit...but this was before I was enlightend.

[fused]

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LynetteM wrote:

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@newstart2010 wrote:
Ok good to know.  I was unsure if just building an amazing history with the revolving bank cards with rewards was enough, or if it was good to have consumer credit on there and paid off. 

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It certainly doesn't hurt to have consumer credit that you have paid off. I'd just do it very selectively. An installment loan for a car fits the bill. If you can pay your credit cards in full anyway, I'd get a good rewards card, reap those rewards, and pay the balance. You don't need to show that you financed household goods, and you need to be careful not to fall into that "consumer finance" category that can hurt your score.

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Excellent point, Lynette.

[Anonymous]

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@fused wrote:

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@LynetteM wrote:

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@newstart2010 wrote:
Ok good to know.  I was unsure if just building an amazing history with the revolving bank cards with rewards was enough, or if it was good to have consumer credit on there and paid off. 

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It certainly doesn't hurt to have consumer credit that you have paid off. I'd just do it very selectively. An installment loan for a car fits the bill. If you can pay your credit cards in full anyway, I'd get a good rewards card, reap those rewards, and pay the balance. You don't need to show that you financed household goods, and you need to be careful not to fall into that "consumer finance" category that can hurt your score.

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Excellent point, Lynette.

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What does it take to fall into this category?  I purchased a couch through store financing back in Sept 2007... PIF by Sept 2008.  Does it take a few dings from stores to leap into this category?

[haulingthescoreup]

If your furniture store financing shows up as revolving on your credit reports, it's OK.

Consumer finance accounts report as installment. That's how furniture loans used to go, but they seem to have switched the reporting type to revolving in recent years, which is handy!

[Anonymous]

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@haulingthescoreup wrote:
If your furniture store financing shows up as revolving on your credit reports, it's OK.

Consumer finance accounts report as installment. That's how furniture loans used to go, but they seem to have switched the reporting type to revolving in recent years, which is handy!

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According to my Equifax report, the furniture store is listed as an installment.  So what you're saying is by adding an account of this type hurts my score and looks bad to future creditors.