Many consumers, in an attempt to improve their credit, will buy something on credit. The idea is timely payments show up the credit report raising ones’ credit score. While this is true, there is potential down-side. Many consumers we interview will purchase a high-ticket item, such as a car so they can begin showing a history of payments. The problem here is, the high interest rate makes the strategy way too costly.
Example: Auto costs $15,000. The loan is a 60 month term at 17% interest rate. (This is a very common scenario for consumers with poor credit). Monthly payment is $372.79. Very affordable and you are building your credit, but at what cost? At the end of the day, you will have paid a total of $22,367.40. That’s $15 thousand for a car that 5 years later will be worth a few hundred bucks. The cost to build your credit: $7,367 paid in interest payments.
There is a better, less expensive way to build credit. Please see https://heritagecreditgroup.com/give-credit/.