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Credit Score Q&A: Credit Offers with No Interest, No Payments for 12 Months?

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Reader Question:

If you purchase furniture or any other large retail item and take advantage of the store’s deferred interest program for 12 months, no interest –same as cash offer, and the retailer issues you a credit card, does your credit score suffer if you: A) never activate the credit card or, B) activate the card but never use it and subsequently, the credit grantor closes the account due to inactivity?

Answer:

In this particular scenario, there are several different ways that your credit score may be impacted.  The exact impact will vary based on the overall credit profile of the individual. Let’s take a look:

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  • When applying for the credit, it is likely the lender will pull a credit report so an inquiry for credit (also known as a hard inquiry) would be posted on the credit report— and that could result in loss of points when the report/score is requested in the future.
  • The lender will likely report the new credit obligation to the credit reporting agencies, even if account is in deferred status — meaning the payments aren’t technically due for 12 months.  A new credit obligation hitting the file could cause the score to decrease.
  • If the account is reported as a revolving credit account (like a credit card, for example), it would be considered in the revolving utilization attributes.  If no balance is reported, the consumer gets benefit of incremental available credit.  If full balance is reported, it could make them appear more utilized and could result in lower points.
  • Likewise, if the account is a revolving account and the lender closes the account (with closed status reported), it could cause the score to drop because the available credit on the account is closed off and no longer counted by the score. Many people believe that the notation “account closed by credit grantor” is what hurts the score, when in all actuality, who closed the account (whether the consumer or the lender) isn’t a factor – the loss of the credit limit and it’s impact on the total revolving utilization is where it counts.

As you can see by these examples, there are many different variables that come into play with a new account opening.  In essence, a new account opening can impact several attributes in a credit score calculation. In this scenario, the new account could impact three of the five main categories including: inquiries (or recent applications for credit), credit history (a new account opening is very new and has little to no account history yet), and new debt — or more specifically, the amount of revolving debt.

[Ask an Expert: Email creditexperts (at) credit.com for accurate answers and honest advice from the experts at Credit.com.]

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