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. – DJClayworth Mar 19 '12 at 17:24
  • @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 – f1StudentInUS Mar 20 '12 at 18:37

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) – f1StudentInUS Mar 19 '12 at 17:32

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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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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