A warning about store credit accounts

[Ivan Seeking]

We just caught this on an interest free loan from Home Depot. We bought a bunch of stuff for the house including some big ticket items for the remodel job underway. By signing up for a credit account we got a 10% discount which was significant. Also, being that it was interest free for one year, we decided to let it float and take care of some other issues with the money. Now this is all fine, but luckily this came to my attention in the fine print; and really by chance, it was easy to miss: If the loan is not paid in full at the one year mark, a high rate of interest - I think ~21% - is applied retroactively to the entire year!

 

[Moonbear]

That's the case on most of those "interest free" loans. They also have a tendency to not send you monthly statements on some of those in the hope you might forget to pay it off.

 

[TheStatutoryApe]

Ouch...
I just avoid credit cards entirely but I'll probably have to get one eventually if I ever hope to build any credit.

 

[FredGarvin]

You've never heard of this? That has been the standard for one of those interest free jobs since their inception. The deals are great if you can make yourself pay it off in time. Most people don't which is what they are banking on.

The other thing to watch out for is that even though you may only use it once, is that just the act of applying for the card goes on your credit report. Most of the time you will take a little bit of a hit on your credit score. If you do this a lot, it can really start to have an effet on your score. Make sure if you use the credit for a single purchase to close the account when you are done!

 

[Chi Meson]

Note to you young 'uns out there:

Have one and only one credit card; pay it off each month. Never hit your credit ceiling. Avoid citicorp.

 

[Moonbear]

The other thing to watch out for is that even though you may only use it once, is that just the act of applying for the card goes on your credit report. Most of the time you will take a little bit of a hit on your credit score. If you do this a lot, it can really start to have an effet on your score. Make sure if you use the credit for a single purchase to close the account when you are done!

I've never understood that catch-22 of credit scores. If you don't apply for any credit cards, you get told you have an insufficient credit history and you can't qualify for a loan when you need it for a major purchase (i.e., car, house), even if you've been great at scrimping and saving and can make a substantial downpayment. On the other hand, when you apply for credit cards, then they tell you you get a ding on your credit score for applying.

To add to Chi Meson's advice to the "young-un's"...only use your credit card to buy things you already have the money to pay for. They're good to keep from having to carry around wads of cash, or for an emergency purchase, such as when you're stranded on the side of the road and need to pay for the tow truck, but if you're using them to borrow money you don't have, you start in a pattern of debt that's very difficult to get back out of.

 

[Ivan Seeking]

As a part of my life as a starving student and entrepreneur, I used to review credit reports.
I don't think applications really count against you unless there are too many within a short period of time. A long list of high max accounts with zero balances and no late payments is best.

One credit game that Tsu and I play is with the air miles for purchases bit. We use a card for most of our purchases, but the balance gets paid each month so we never pay interest. We usually get about two free roundtrip tickets to Hawaii each year.

 

[TheStatutoryApe]

A long list of high max accounts with zero balances and no late payments is best.

From what I understand having a really deep line of credit, even if you don't owe any thing on any of your accounts, can be bad in certain situations. Apparently if you have just the ability to go into substancial debt at any given time you are considered a risk.
My ex's parents attempted to get a loan to do some work on their property a while back. They had perfect credit and a really long line of credit and their report came back unfavourable. When they asked they were told that they have too much credit and were advised to drop some of their credit cards or reduce the lines of credit on them.

---edit---

Ofcourse most of us probably don't have to worry about such a thing happening but it's an interesting little tid bit.

 

[Kerrie]

I don't think applications really count against you unless there are too many within a short period of time. A long list of high max accounts with zero balances and no late payments is best.

This I believe is true, especially if you are car shopping or applying for home loans. Those "credit checks" come off within a month or two.

 

[FredGarvin]

I am convinced that the people who figure out credit scores are also the people that figure out airfare price structures. There is no rhyme or reason to it.

I saw a special that Suze Orman did and she spent a lot of time on credit scores. The application part really surprised me. Although, no that I think about it, I believe Ivan was right in that if they see a lot of applications in a short period of time, they can be detrimental. Either way, there is a catch 22 it seems. I just am happy if I stay on the plus side of the national average.

 

[Ivan Seeking]

From what I understand having a really deep line of credit, even if you don't owe any thing on any of your accounts, can be bad in certain situations. Apparently if you have just the ability to go into substancial debt at any given time you are considered a risk.

Now that you mention it, this came up when we re-financed our home. Maybe this applies mainly to large loans...