Does Buying Furniture Build Credit? Here’s How

A credit score is a numerical representation of an individual’s creditworthiness, influencing access to financial products and services. This article explores whether purchasing furniture can contribute to building a credit history, detailing the financing methods involved and their impacts on credit scores.

How Credit Scores Work

Credit scores, such as the widely used FICO Score, reflect information in an individual’s credit report. These scores are calculated based on five categories. Payment history holds the largest influence, accounting for 35% of the score, indicating consistent on-time payments.

Credit utilization, or the amount owed, makes up 30% of the score, assessing how much credit is used relative to the total available credit. A lower utilization rate, ideally below 30%, is viewed favorably. The length of credit history contributes 15%, favoring older accounts and a longer established credit presence.

New credit applications account for 10% and can temporarily lower a score due to hard inquiries. The credit mix, which includes different credit types like revolving credit and installment loans, makes up the remaining 10%. These factors collectively determine a score, typically ranging from 300 to 850, which lenders use to assess risk.

Furniture Financing Options

Consumers have several avenues for financing furniture purchases, each operating as a distinct form of credit. Store credit cards, often offered by furniture retailers, provide a revolving line of credit for purchases within that store or its affiliated brands. These frequently come with promotional offers, such as 0% annual percentage rate (APR) for six to 24 months.

General-purpose credit cards can also be used, allowing individuals to leverage existing credit lines. Some general credit cards may feature introductory 0% APR periods on new purchases, lasting 12 to 21 months. Another option is a personal loan, an installment loan from a bank or online lender that provides a lump sum to be repaid in fixed monthly installments over a set term, often with interest rates between 4% and 36%.

A “rent-to-own” agreement involves periodic payments to use furniture with the option to purchase it later. Unlike credit cards or personal loans, these agreements often do not require a credit check and are structured as leases with an option to buy.

Impact of Furniture Financing on Your Credit

Utilizing furniture financing can directly influence your credit score, depending on the type of financing chosen and how it is managed. When using store or general-purpose credit cards, on-time payments positively contribute to your payment history, the most significant factor in credit scoring. However, these cards can negatively impact credit utilization if the balance owed is high relative to the credit limit. Maintaining a low balance, ideally under 30% of available credit, helps preserve a healthy utilization ratio.

Personal loans, as installment credit, contribute to your credit mix and payment history as you make consistent, on-time monthly payments. Their fixed payment schedule makes managing them predictable, reducing the risk of missed payments that would otherwise harm your score.

In contrast, rent-to-own agreements typically do not contribute to building a positive credit history. Most rent-to-own companies do not report payment activity to the major credit bureaus. This means even consistent, on-time payments will not appear on your credit report, offering no direct benefit for credit building.

Other Ways to Build Credit

Beyond furniture financing, several methods exist for establishing or improving credit. Secured credit cards are a choice for individuals with limited or no credit history. These cards require a refundable cash deposit, which serves as the credit limit, mitigating risk for the issuer. Responsible use, characterized by on-time payments and low credit utilization, is reported to credit bureaus and helps build a positive payment history.

Becoming an authorized user on another person’s credit card account can also contribute to credit building. If the primary account holder manages the card responsibly by making on-time payments and keeping balances low, that positive activity may appear on the authorized user’s credit report. It is important that the card issuer reports authorized user activity to the credit bureaus for this method to be effective.

Credit-builder loans help individuals establish or rebuild credit. With these loans, the funds are held by the lender in a locked account while the borrower makes regular payments over a set period. These on-time payments are reported to credit bureaus, demonstrating a consistent payment history. Once the loan is fully repaid, the funds are released to the borrower, providing a savings component alongside credit building. Additionally, some services allow consumers to have on-time rent or utility payments reported to credit bureaus, which can positively impact credit scores.