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Looking to buy a new computer. While I can afford to buy it outright, I'm looking to get a loan to help make my credit a touch better. But I'm wondering if I should just go with a line of credit, that way I have something for emergencies once the computer is payed off. Will keeping the LoC paid up increase my credit score like a paid loan will? Or should I stick with the loan?

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    Taking a loan to improve your credit score is like throwing yourself off a ship to improve your swimming. Mar 19 '12 at 17:24
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    @DJClayworth: It might seem like a no brainer to experienced people like you, and to me in hindsight,but I almost did the same 6 months ago. See my first few questions! My decisions then were based on feedback from family members and a credit union rep. The only reason why I didn't end up doing so is because of the replies to my question on this forum! +1 Mar 20 '12 at 18:37
  • @DJClayworth "sink or swim" is a long-accepted method. Besides, a thin credit history would be helped by a personal loan.
    – RonJohn
    Feb 10 at 15:48
  • @RonJohn It's a method with a high fatality rate. Feb 10 at 16:45
  • @DJClayworth quite true; it's very Spartan.
    – RonJohn
    Feb 10 at 16:49
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To help your score, use a credit card, and pay it in full each month. This should cost you nothing, and may get you some rewards depending on the card. Store cards don't really help the score as much as a regular credit card, and can hurt if you have too many.

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Assuming you have a credit card, I recommend you use it for the purchase.

It gets you two things at the very least:

  1. Gets the purchases reported as credit utilization. If you handle that correctly, you can improve your score

  2. Most card vendors give extended warranty and return policies that a retailer or manufacturer does not without extra fees.

I buy all my electronics using my cards and not only does that optimize my scores but I have been able to enjoy painless/better RMAs for defective products just because my AmEx card would have refunded me the money anyways and the retailers knew it (AmEx would have recovered it from them in the end so it was in their interest to resolve the matter within 30 days)

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    Plus you would also accumulate some reward points i guess.
    – Dheer
    Mar 19 '12 at 8:09
  • @Dheer: Oh yes, and more, but that depends on the card. I just mentioned the mere basics that can be guaranteed for any "good" card (I have heard some cards don't offer even those features like warranty manager, but have never come across them personally) Mar 19 '12 at 17:32
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    The value of this answer could be greatly improved by mentioning that the card balance should be completely paid off before the next billing period, to avoid actually incurring interest charges. Feb 10 at 13:50
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You're likely not going to get the result you desire from taking out a Personal Loan or a Line of Credit to pay for the computer and you'll pay dearly as well.

When it comes to credit, utilization (the amount of actual debt you have on revolving trade lines) is negatively inverted with your actual score. You'll also pay interest when you're carrying a balance on any loan without any reason to do so (why pay the bank money for no reason?)

The most important things you can have on your credit report is:

  1. Payment History
  2. Utilization

If you open the Line of Credit and have no balance carried at all it should report favorably on your credit report. This will help your utilization, payment history, and "Average Age of Accounts" (AAoA).

In short, you can use the Line of Credit or Personal Loan to enhance your credit, but there is no need to carry a balance to do so (and doing so can negatively affect your credit depending on how the account is reported).

Buy the computer using a Credit Card for some of the reasons already mentioned if they appeal to you, but don't pay interest unnecessarily as a sort of credit tax. It isn't a valuable use of your money.

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Don't get a loan, just to improve your credit score. Being debt free is one of the best things in life.

  • Avoiding Debt completely: If you don't have emergency fund, first set it up. The remaining money, you plan to buy new computer. If you don't have enough money, unless it is not urgent, save money and purchase it with your own money.

  • Still want to get loan due to lack of money: If you don't have emergency fund, first set it up. The remaining money can be used to pay for the computer. The shortfall, can be adjusted through loan. I would suggest you to get personal loan, instead of credit cards. I would suggest you to get Personal loan, which is non-revolving one time credit and try to pay off as early as possible. Avoid debt in future. Don't go for line of credit or credit cards, which will make you to get in to debt again and again.

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  • A note - the "personal line of credit" is not quite the same as a credit card, though the concepts can be similar. Feb 10 at 15:47
  • @Grade'Eh'Bacon, yes. I mean one time personal loan, not personal line of credit. Feb 10 at 15:48
  • To clarify, what I mean is, the OP has asked for a comparison between a Personal Loan and a Line of Credit; I think your answer is accurate, but doesn't directly address what the OP has asked. However for these purposes of comparison, the points you have raised about revolving vs non-revolving should apply to either a line of credit or a credit card, so simply expanding your terminology to match the OP's should make this a better answer. Feb 10 at 15:56
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    @Grade'Eh'Bacon, thanks for taking time to reply in detail. I have updated my answer. Feb 10 at 16:09

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