If you have recently visited a specialty retailer to purchase a bigger ticket item (appliances, computer, television, etc.) they usually ask you if you are interested opening in-store credit to finance the purchase. In many cases, they will promote favorable benefits of this financing option such as “90 days no interest” or “No payment due in first 12 months” or “10% off the purchase price”. Sounds great, but what’s the catch?
What impact do these in-store sales finance credit obligations have on a credit score and are they different from a standard retail store credit card?
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The potential impact will depend on how the new credit obligation is reported and the other information in your credit report. The fact that you now have a newly open credit obligation being reported and have taken on new debt will likely result in the loss of points – and that holds true regardless if it is a store credit card or an in-store finance account. These points will be regained over time as you demonstrate you can successfully manage the new credit obligation (holding all else constant).
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Typically, the in-store financing obligation is reported to the credit bureau as a sales finance obligation which is also further classified as an installment type of credit obligation where as a retail credit card would typically be reported as a revolving type of credit obligation. Credit scores tend to focus more heavily on the use of revolving type credit as research shows how consumers manage their revolving related credit is very predictive of future risk. It is likely a balance on a revolving trade will have more impact on a credit score as compared to balance reported on an installment trade.
Understanding these differences can help you make a more informed decision on what financial option best meets your credit and credit profile needs.
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