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So I have a big purchase that I have saved up for; I have all the money I need for it.

I also have just about zero credit history; I have never had need for it. I recently got my first credit card after being rejected for a bank account due to that lack of history (which strikes me as ridiculous as I was not signing up for any credit services, but that was the bank’s policy).

The aforementioned purchase is an order of magnitude greater than my new card’s limit, and financing is available. Would it be in any way advantageous to accept that financing, put chunks of the cost on the credit card, and pay those off in those chunks? Ideally I would want to do this quite rapidly to minimize interest costs.

Would doing this actually improve my credit rating/extend my credit history in a useful way? Or is the only option available for doing that just to use my credit card regularly and slowly build up credit over time?

Actually, for that matter, are there any legal concerns there? Could this procedure be some form of fraud?

I live in the United States.

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Extending Your Credit History

One of the factors of a credit score is the "length of time revolving accounts have been established". Having a credit card with any line of credit will help in this regard. The account will age regardless of your use or utilization.

Financing Your Purchase

If you are having issues with credit limits and no credit history, you may have trouble getting financing for the purchase. You should be sure you're approved for financing, and not just that the financing option is "available" (potentially with the caveat of "for well qualified borrowers").

Paying For A Financed Purchase With The Credit Card

Generally, if you've gotten approved for financing, that will come in the form of another credit card account (many contracting and plumbing companies will do this in hopes you will use the card for future purchases) or a bank loan account (more common for auto and home loans). With the credit card account, you might be able to perform a balance transfer, but there are usually fees associated with that. For bank loan accounts, you probably can't pay that off with a credit card. You'll need to transfer money to the account via ACH or send in a check. In short: I wouldn't bet on paying with your current credit card to get any benefit.

Legal Implications

IANAL. Utilizing promotional offers, whether interest-free for __ months, no balance transfer fees, or whatever, and passing your debt around is not illegal, not fraudulent, and in many cases advised (this is a link), though that is more for people to distribute utilization across multiple cards, and to minimize interest accrued.

Many people, myself included, use a credit card for purchasing EVERYTHING, then pay it off in full every month (or sometimes immediately) to reap the benefit of cash back rewards and other cardholder benefits. I've also made a major payment (tuition, actually) on a Discover card, and opened up a new Visa card with 18-months of no interest and no balance transfer fees to let the bill sit for 12 months while I finished school and got a job.

  • Hmm, assuming I'm approved for the financing, does taking it and paying it back right away improve my credit? I wasn't thinking of it as a credit card, but I now realize there's no reason to get the new card involved at all. – KRyan Jun 2 '14 at 22:35
  • It will initially hurt it, because it's another new (revolving?) line of credit, and that's a lot of new accounts for someone with no history, but having a credit card account with a high limit and low / no utilization will be better in the long run than having no credit – Noah Jun 2 '14 at 23:17
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The biggest risk is Credit Utilization rate. If you have a total of $10,000 in revolving credit (ie: credit card line) and you ever have more than 50% (or 33% to be conservative) on the card at any time then your credit score will be negatively impacted.

This will be a negative impact even if you charge it on day one and pay it off in full on day 2. Doesn't make much sense but credit companies are playing the averages: on average they find that people who get close to maxing their credit limit are in some sort of financial trouble.

You're better off to make small purchases each month, under $100, and pay them off right away. That will build a better credit history - and score.

  • The OP has no credit now. High utilization may not be good but its better than no credit history. Not only that if the OP pays it off before reporting cycle every month there will be utilization and low balance. Should not be a negative – Chad Jun 2 '14 at 21:30
  • "even if you charge it on day one and pay it off in full on day 2" - do you have any citations for this assertion? AFAIK - it's only what is there when the bill is cut. In a 2 month period, I ran $50K through a card with a $10K limit, but the bill was never over $2000. Credit report looked fine, as if nothing was out of the ordinary. – JoeTaxpayer Jun 2 '14 at 23:13

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