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Ask Creditnet: How In-Store Financing Can Hurt Your Credit Scores

forest5544 — Mon, 23 Aug 2010 04:43:09 +0000

Dear Creditnet: I’m currently in the market for a new TV and Best Buy is offering 0% financing for three years.

My question is when you open an account like this, how big of a hit does your FICO score usually take and how long will it take to rebound?

I could easily pay cash for the TV up front, but the “finance” person in me says it’s free money—why not take the terms?

Answer: Hard inquiries for a new credit card will generally drop your FICO score about five points, but it should bounce back within a few months. In some cases, a hard inquiry may not even affect your FICO score at all, so I wouldn’t worry too much about having an extra inquiry on your credit reports.

However, what you should worry about is how retail credit card deals (what Best Buy is actually offering you) can often wreak havoc on your credit utilization ratio, which accounts for about 30% of your FICO score. Here’s how it works.

If they give you a $3,000 credit limit (places like Best Buy often don’t offer very high limits) and then you immediately charge $2,500 for the new TV, you’re already at an 83 percent credit utilization ratio on the card. That will definitely have a negative impact on your score until you pay the balance down.

In fact, in order to keep your credit score at its best, you should never use more than 10-30 percent of your available credit on any individual card. Likewise, you’ll want to keep your overall credit utilization under 10 percent.

So, if the finance guy in you still wants to get some free money, I think it might be a better idea to just go ahead and get a new 0% interest credit card (Citi Platinum Select is offering 0% interest for 18 months right now) with no annual fee. If you have good credit, you’ll most likely get a much higher limit than you would from Best Buy, which will allow you to keep your credit utilization low while paying off the entire balance at no interest.

If you’re not keen on getting a new credit card, I would just make the purchase using the credit card you normally use, and then immediately pay it off in full with the cash you’ve saved. Stay away from Best Buy’s in-store financing—it’s not worth it.

How Credit Card Companies Advise You To Use Credit

forest5544 — Mon, 23 Aug 2010 04:43:01 +0000

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forest5544 — Mon, 23 Aug 2010 04:43:00 +0000

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forest5544 — Mon, 23 Aug 2010 04:42:59 +0000

Here is an email I got recently: We have a…

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Credit Card Fees Are Goin’ Down!

forest5544 — Mon, 23 Aug 2010 04:42:35 +0000

Your interest rate on your credit cards could decrease if your rate was increased after January 1, 2009. Your credit card issuer is required to review your account and lower your rate if the circumstances that led to the increase have improved. The Federal Reserve issued new rules last week regarding Credit Cards, and they are ALL good news to those of us who use credit! The new rules go into effect August 22, 2010. For information on some of these changes (like those “Free Credit Reports that just AREN’t) , click here.

No more $39 late fees on Credit Cards! Last week, the Federal Reserve issued rules that put more limits on credit card late fees and other fees. Under this new rule, the fees will be based upon how long it’s been since you were last late. So the first late fee can be as much as $25 or $35 if you’ve been late within the past six months. Credit card issuers may be able to charge a higher late fee if they can prove that payment delinquencies cost them more than $25/$35.
Remember, you must agree to be charged an over-the-limit fee… meaning you must say that you are willing to pay a fee if they are willing to extend credit over your credit limit. The new fees apply to all credit card violations, including over-the-limit transactions.
Penalty fees can’t exceed the amount of the violation. For example, if a $5 charge pushed you over your limit, your fee can’t exceed $5. Similarly, if you were late on a $15 minimum payment, your late fee can’t exceed $15. We expect minimum payments to increase so that the late fee they’re able to charge can go up.
Buy a tank of gas with your credit card… We suggest using your credit cards at least once every 6 months, and then pay the charge off… Beacause Inactivity fees – charged when your credit card has been dormant for a period of time – are no longer allowed. However, your credit card issuer is still able to close your credit card for inactivity, which could cost credit score points, so again, use the card every 6 months or so.
Credit card issuers are now required to give you an explanation for increasing your interest rate.

Just because the penalty for missing a payment is not as high – doesn’t mean you should stop making payments on time. Credit is one of the most valuable things you have! The other consequences still stand. You could trigger a penalty interest rate increase and the late payment might hurt your credit score. Same thing goes for exceeding your credit limit. Remember if you’re late more than once within six months, your late fee could be as much as $35.

If you are considering a purchase of a home, or your need to refinance a home or a car… you probably need better credit. We can help improve your credit score so that you can get back to where you want to be with credit! Call Steve Thorne, FFSi, 919-649-5058 for help with credit repair and improve your FICO score today!

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