Zero Percent Financing will damage your credit

Zero percent financing

And Better 10 Percent In every dept – NARA – 534574 (Photo credit: Wikipedia)

Zero Percent Financing Pitfalls

If you accept zero percent financing from a store it will ramp up your credit utilization ratio. The store opens a store credit account for the exact amount of the purchase which means to the FICO computer the account is maxed out. Thirty percent of your FICO score is based on your credit utilization ratio. You want to keep this ratio as low as possible.  That means ideally you want your debt to available credit ratio under 10% if your goal is to keep your score well into the 700s. Consumers that have a FICO score above 760 have an average credit utilization ratio of just 7%! On that one particular zero percent financing item you will be at 100 percent utilization until it is paid.

But That Discount is Tempting

When you take your purchase to the cashier you may be offered a discount of 10 percent, 20 percent or even more if you open a store account along with the zero percent financing. Only a purchase of a large amount gives you enough savings to possibly make the offer worthwhile.  If you are ever going to let this type of discount influence your decision to open a store account it should be for a very pricey item that you were going to buy anyway.  By that I mean a large screen TV or expensive piece of furniture.

Store Accounts and Your Credit Score

If your credit file is thin or non existent a store account can be a good way to get started on building a good credit score if the store will take a chance on you.  Other than that situation store accounts have little positive effect on your credit score even if paid faithfully.  Credit scoring systems look upon them as a kind of inferior type of credit. Most zero percent financing deals from stores don’t report to all 3 credit reporting agencies. But remember that if you fail to make timely payments it can hurt your score just as much as any other late payments.  The takeaway here is that even with zero percent financing store credit accounts can hurt you more than they can help you.

Average Age of Credit is an Important Factor

Another reason to pass on these deals is that you are opening a new account which lessens the average age of your credit history. Credit history, known in the trade as “time in file”, comprises about 15% of your score. Zero percent financing can be misleading in another way. Many accounts also charge high interest going back to the date of purchase if not paid on time.

Consider the whole picture before jumping at zero percent financing offers.


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After practicing law for 37 years Edward F. St. Onge, Sr. now devotes all his time to helping consumers achieve a high credit score with amazing speed. Learn the counter-intuitive secrets to credit scoring through his down to earth instructions backed by extensive knowledge of the laws and trends. All of the latest tricks and techniques that they don't want you to know now at your disposal. At last a level playing field for the consumer!

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