credit cards

Why 0% financing from retailers can be a bad deal

It could hurt your credit
It could hurt your credit | courtneyk/Getty Images

It could hurt your credit

Many times, that available line of credit on your new card is equal to the total you're purchasing, Bowne says.

So, in essence, "you're opening up a maxed-out credit card, which doesn't look good on your credit report," she says.

It can also damage your credit score.

Here's why: One of the key factors that helps determine your credit score is your credit utilization ration, which is the difference between how much credit has been extended to you versus how much credit you're using. In general, the more of your available credit you use, the lower your score will be.

To find out how a 0% financing offer would affect your credit, ask the issuer if it will report the account to credit bureaus as a close-ended loan for a set period or a revolving account. Maxing out a revolving loan will have a bigger impact.

When you get the answer, consider your own situation. If you're planning a major purchase in the next year, such as a home or car, it might be cheaper to skip opening a new account, pay cash and preserve your credit score.


Editorial Disclaimer: The editorial content is not provided or commissioned by the credit card issuers. Opinions expressed here are author’s alone, not those of the credit card issuers, and have not been reviewed, approved or otherwise endorsed by the credit card issuers.

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