Q: What about buying furniture and using a payment plan? Is that a way to build credit?

A: Yes. So that is a way to build credit, but you should be mindful of who is financing that furniture and whether they report to credit bureaus. Within furniture stores, there will often be 4 different types of financing that you might qualify for. That could be financing through what we’d call a primary lender—typically someone who finances for people with established credit history—and those loans typically qualify for some sort of 0% financing for a fixed term. Those would report to the credit bureaus and would be a way to build credit. However, make sure you pay that off within the 0% period, before the interest hits. It can be costly if you don’t pay it off in time. 

There are other, secondary lenders. Genesis, for example, plays in that space. They would give you a credit card with similar terms. There are also installment lenders that provide payment plans for furniture stores, and they will often but not always report to credit bureaus. It’s always a good idea to ask. 

On top of that, there are lease-to-own offerings. Those are not loans, but they are a way to finance a furniture purchase. Lease-to-own plans do not report to credit bureaus, because they’re not loans. They can also be very expensive. You’ll often end up paying twice the ticket price of the furniture if you choose to buy it through a lease-to-own structure. 

A furniture store loan is not better than any other loan. If you’re considering one, find out whether they actually report to credit bureaus by calling their loan provider and asking about it. If you can’t get an answer, you can choose to go to your bank and take out a loan there to use for furniture. There’s nothing special about the loans at the furniture store, although often they’ll give you more credit than a general purpose line of credit. 

On the loan agreement itself, they are required to tell you if they will report negative information. Look for the words “notice of negative furnishing”.

Q: Can you build credit by putting your paycheck in a checking or savings account?

Generally no, this would not build your traditional credit. The bureau ChexSystems provides credit reports for banking, checking and savings accounts. That means having a good history with your bank and limiting your overdraft fees, a regular stream of deposits will be good for the ChexSystems report. It won’t have an impact on your regular credit report because it isn’t considered debt.

Q: I’ve heard derogatory remarks stay on your credit report for years, with no impact if you pay it off. Is that true?

If a debt is reported to your credit bureau as charged off or defaulted, and then you pay in full, or you settle that, the credit bureau will be updated. It will move from “charged off” to “charged off, then paid in full”. So while it’s not as good as not having charged off a loan, it’s better than having a charge-off amount that’s unpaid. The total balance associated with a charged-off or defaulted loan is a factor that many lenders use in their credit check, so it should improve your credit.

Beyond these questions, there’s so much more to ask about credit. As part of our commitment to our customers’ financial wellbeing, this financial literacy series will break down these topics. Our mission at Possible is to help you end the debt trap and unlock economic mobility for good. 🟦