Not too long ago, I got myself into a sticky credit situation. I overspent and found my income cut when I lost some hours at work. Before I could get another job lined up and producing income, my credit had slipped, and I was behind on some bills. A friend told me I could build my score back up with a store credit card or a catalog with instant credit.
I did some checking about that, and what I found didn’t encourage me much.
First, the interest rates on the catalog accounts I applied for were significantly higher than the standard credit rates I had experienced in the past. I knew I couldn’t apply for more credit by traditional means, but I still was not willing to take on a higher interest rate. I would only drive myself deeper in debt, and that was not in my best interest.
Second, the information about the interest rates was not easy to find. I had to ask and ask and ask. Fortunately, I persisted because I knew what questions to ask. Some just sign blindly because we all know how tedious the fine print can be, especially with the sales person standing over your shoulder! If you sign the application, you are on the hook for the interest rate on the paper, so read it!
Third, the interest rate went up after three months if I didn’t pay off the balance. My point in pursuing credit was to rebuild my credit scores. That meant I wanted to carry the balance over a short period of time, while making regular payments to rebuild my payment history. If I did that, my interest rate would have soared, and I would have been back in the same boat.
Finally, the thing that really sealed the no-deal for me was that some of the catalog credit accounts I was considering only reported to the credit reporting agencies if accounts became delinquent.
What does that mean?
When companies assess your credit scores, they look at a couple of things. First, they look at how often you have late payments. Second they look at how much credit you have in your name. Then they look at how much of your available credit is used. If too much of your credit is already used, your score will be lower.
In some cases, if you have one or two cards that are at or near their limit, it can be beneficial to open a third account to show lenders you have not utilized all your credit capability. But in the case of the catalog credit accounts I looked into, if they don’t report, I don’t get the benefit of having an available line of unused credit to boost my credit scores.
Furthermore, if I opened an account like this and made regularly monthly payments on time, they would not report that either. They only reported delinquencies, which can only hurt me. In my case it was not worth it to open this type of credit account because I needed the advantage of boosting my credit score, but they wouldn’t report my good credit behavior, just the bad.
A couple other things to remember in looking into catalog credit, they may offer you a lot of perks. One I looked into offered discounts to restaurants, hotels, and other stores. But those benefits were only available to their members, and-you guessed it-membership costs extra!
Some of the places you might expect to be able to use a catalog credit account are the places you shop online. In those cases, please be careful. You can find yourself getting substandard products with no recourse. After all, looking at your computer screen often does not give you an accurate picture of the product you are buying. Unless you have touched it, felt it, inspected it, and are satisfied with it on the showroom floor of your local store, think twice before purchasing it online. Some return policies are extremely difficult. Some are nonexistent. Be sure you know what you are getting.
Bottom line is this. Know what kind of credit you are applying for. Read every word on every piece of paper they put in front of you. If you must apply for credit online, be sure you are working with a secured site, so your information cannot be stolen. Never answer an unsolicited application.
You are responsible for the terms and conditions of your catalog credit account. You can find yourself in a world of hurt with products you don’t want if you neglect your research. If you are looking to boost your credit report scores, do it the smart way, not with catalogs with instant credit. Pay off the credit you’ve got. Don’t open more. Yeah, it takes more time, but the headaches you can avoid will be worth every minute!
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