Rebuilding Credit: Buy on Credit From a Local Business
Set up a payment plan with a local merchant to purchase an item, and rebuild your credit along the way.
Another way to repair your credit is to approach a local merchant (such as an electronics or furniture store) and arrange to purchase an item on credit. By sticking with the store's payment plan, you can begin to build positive credit history. Here's how.
Setting Up a Payment Schedule With the Store
Many local stores will work with you to set up a payment schedule, but be prepared to put down a deposit of up to 30% or to pay a high rate of interest. If you don’t qualify for the merchant’s credit plan, the merchant might agree to give you credit if you get someone to cosign or guarantee the loan.
Be sure to ask whether the merchant reports its accounts to any of the three nationwide credit reporting agencies. It's best if it does. But if it doesn't, you still may be able to use your timely payment receipts to show another creditor your creditworthiness.
Buying on Layaway Could Lead to Store Credit
Even if a local merchant won’t extend you credit, it may let you make a purchase on a layaway plan. When you purchase an item on layaway, the seller keeps the merchandise until you fully pay for it. Only then are you entitled to pick it up.
One advantage of layaway is that you don’t pay interest, but there may be a flat fee or a fee to cancel the layaway, if allowed by your state’s laws. One disadvantage is that it may be months before you actually get the item. This might be fine if you’re buying a dress for your cousin’s wedding that is eight months away. It isn’t so fine if your mattress is so shot that you wake up with a backache every morning.
Layaway purchases are not reported to credit reporting agencies. If you purchase an item on layaway and make all the payments on time, however, the store may be willing to issue you a store credit card or store credit privileges.
For other ways to repair bad credit, see the articles in our Improving & Rebuilding Credit topic.
This is an excerpt from Credit Repair, by Margaret Reiter and Robin Leonard (Nolo).