The Reason Why You’ll Never Want To Take A ‘No Interest, No Payments’ Offer From A Retailer Again

Now that you’ve Opted-Out and reduced unnecessary access to your credit report that will result in a higher credit score, let’s focus on another strategy that will keep you from damaging your score inadvertently in the future.

Creditors are very crafty with their messages and strategies to get you to charge up more debt and fill their accounts with interest fees, late fees, over limit fees, and annual membership fees. One of the most creative ways they do this is with the ‘No Interest, No
Payments’ offers they make through retailers like Mor Furniture.

How do you think they can get away with making these offers and still make money on them?

First off, it’s never the retailer that is carrying the credit, it’s usually Wells Fargo or some other creditor behind it. The retailer gets 70% to 80% of the purchase price in exchange for the creditor to extend the buyer the credit to purchase the merchandise. So if a furniture store sells you $5,000 worth of furniture, they’re going to get between $3,500 and $4,000 from the creditor, depending on the offer.

Then comes the fine print… If you don’t pay off the balance in the time frame given (12 months typically) then you start paying interest at ridiculous rates, typically over 30%. Some creditors even slap you with retro active interest covering the period (12 months in this case) that you didn’t pay any interest if you don’t pay off the balance. On top of this, the data shows that more than 30% of borrowers don’t pay the balance off in full after the 0% period, so the creditors make plenty at that time, too.

None of this is even what ruins your credit score though.

When you receive the credit line to purchase the merchandise, your limit is set almost exactly to the amount of the purchase price. This results in you having a revolving credit account that is now maxed out. If you remember from the tip a couple days ago about the
#1 factor keeping your score down, it’s having revolving credit accounts that have balances greater than 50% of the limit.

Having a maxed out revolving account drops your score like a rock and you wouldn’t have a clue about it until you pulled your score the next time.

So here’s the way to beat this. First, pay cash for merchandise because it all depreciates and very rarely is it required for daily living and falls under ‘discretionary expenses.’ Then, when you see an offer for ‘No Interest and No Payments’ and you are actually in the market for whatever they are selling, go in and offer to pay them 75% of the purchase price if you don’t use their financing. It’s the same exact amount they’d get from the creditor, so be sure to point this out to them if they balk at your offer. Get the manager involved if the floor clerk isn’t savvy enough to understand the details of their ‘wonderful’ financing program.

Yet again we prove that there is no such thing as a ‘free lunch’, especially in the credit world.