Financing E-ring to Build Credit?

[MatchMadeInCarbon]

Hi All,

I''m closing in on purchasing THE e-ring and (being the diligent consumer that I am) thought that this large purchase might be a good opportunity to build my credit. I can afford to pay in cash, but with the right conditions would be willing to lose on interest payments for my credit history. (more on my thoughts below)

Seeing how experienced PSers are at buying jewelry, I thought some of you might be able to share your experience or recommend a good bank for these types of personal loans. I''m not looking for a credit card and I''m not sure if financing through the jeweler would be as beneficial. Is there something like what I''m looking for?

Thanks a lot!
MMIC

Background thinking: I have a basic understanding of credit history & do maintain a high score with credit cards. But I do not have any history of debt in the form of a loan (car, mortgage, anything) and don''t anticipate making any large purchases that would require a loan until I''m in the housing market. At that point, I believe some real debt would be helpful.

 

[1981]

No credit history is worse then bad credit history a lot of the times. I think if you have the cash in reserve (meaning you could always just pay off your indebted balance should you chose), go ahead and take this opportunity to build your credit. Kill two birds with one stone.

 

[elle_chris]

There''s no concensus on this, and you have to remember that a lender is also going to look at your total debt prior to making any loans. Also, if you don''t plan to make any large purchases any time soon, even if you do decide to pay it off in installments, it may not even show up on your future credit report.

Personally, it goes against my better judgment to pay interest on something when I don''t need to. In fact, save that interest and put it towards a large future purchase.

 

[NewEnglandLady]

I'd pay cash every single time--in fact, I'd flat-out refuse to put an e-ring on a credit card. As Dave Ramsey says, your credit score is an "I love debt" score and if you don't plan to need a loan anytime in the near future, then who cares if your credit score is 0. I'd love to have a credit score of 0.

We have a couple of credit cards, but no CC debt, never had a car payment, etc. and applying for a home loan, even if today's climate, was a bit comical since they still seem to want you lend you more than what I feel is feasible. Until last year we'd planned on paying cash for a house (thus wouldn't have to worry about credit score), so we've only had a year to think about credit scores and it was a non-issue. Just having a credit line and no debt was enough to keep our credit scores over 800.

 

[Lula]

Well, setting aside the moral arguments about debt...my concern is even if you decide to finance this purchase through a bank/credit union, very few lending institutions these days are likely to give you a consumer loan for such a purchase (luxury item) even if you have good credit. Those days are over, imho.

 

[Lynnie]

I have an idea...

since you can afford to pay it all off quickly, here''s what I''d do.

Go to your bank, and see about getting a personal loan. Get one with a decent rate (<8%). I''m not sure how ''giving'' these banks are nowadays, but about 5 years ago I took out a personal loan, and got a 6% rate. The loan was for 6K. I think the term was 6 years. Rather than pay the $80/month payment, I paid 500/month. Once the loan was down to $50, I stopped paying because i was soooo ahead in payments. My credit report still showed ''on-time payment'' each month, even though I technically wasn''t paying. This went on for about a year, till the bank called me and told me they were closing the acct- I didn''t even have to pay them the $50. They said it was costing them too much to keep the acct open, and I had basically paid it off anyway (interest really doesn''t build on $50). My credit report shows ''paid in full, no late payments''.

Since you would be opening a substantial loan, I''d pay a big sum on it the first month, so the interest won''t build. Then take your time, spread it out, or leave a small amt just sit there.

Make sure, though, that you can pay ahead when you open it. Some loans require the min payment each month, even if you are ahead.

 

[D&T]

my question is when do you plan on purchasing real estate? if in three months - I'd say no, incurring debt to establish history is really not going to help much in this short amount of time. If in about 1 and a half -2 years is when you plan to buy then possibly it could help especially if you have never carried an open line of credit before.

 

[niceice21]

To be honest, I don''t think an installment loan is the way to go on this. It does not make any sense to pay the interest on it if you have the cash available. I know many banks, if they give you the loan, will charge you extra money if you try to pay off the loan early (at least, this was my experience on my personal loan) because they are out to make their money and if they want to front you money, they want to be rewarded for it. I don''t think it would make that much of a difference in helping your score if you simply opened a new line of credit (through an account with the jeweler or with a cc company) that included interest free financing for a year or whatever and then paid it off over the course of the year. That way, you would decrease any debt to credit available ratio, establish a payment history, and have more available credit; all of which are pluses on your credit report and would be beneficial long term. Keep in mind that an installment loan will no longer count as an available credit line once it is paid off. This would potentially mean that your debt to credit ratio would increase and your score could potentially be lowered. Just my two cents.

 

[MatchMadeInCarbon]

Thanks everyone for their perspective. I''ll undoubtedly be considering all of this in the next few weeks.

For those that were curious:
- I am aware that I''ll be in fact paying more (b/c of interest) with a loan than just cash (which is in hand).
- What I am considering or trying to assess (ASSUMING that I can get a favorable loan- HUUUUGGGEE assumption) is whether or not that interest would be worth any credit history strength (if anything at all).

As I forecast now, I should be in a good position (income-wise) to apply for a sizable mortgage in 3-5 years. With no history of debt at that point (usually people have car payments), I thought this idea would help me at that point.

Thanks again everyone for their honest help!

 

[Sam82]

I don''t think it''s a good idea. If you need to establish credit, try a secured credit card if you don''t qualify for a regular card. You can use the card and pay it off in full each month. You will still establish a credit history. Do it ASAP. It takes a little while to get your score above 700.