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How Jewelry Credit Cards Can Affect Your Credit

You, like your lender, should know the risk of entering into any financial deal beforehand.

When shopping for fine jewelry or other luxury goods, your credit is probably the last thing on your mind. Even those of you who finance your items via retailers’ special promotions aren’t likely to think about your credit when applying.

Because you’ve made the reasonable assumption that your in-store purchases have nothing to do with your credit. What, after all, does your credit have to do with your financial obligation to a retailer?

As it turns out, the connection between the two is more pronounced than many people believe it to be. In fact, that connection can actually hurt your credit on some occasions.

Here are four ways in which financing your jewelry might affect your credit:

1. Your Credit Utilization Ratio Might Increase

As we discussed in an earlier piece about the things you should avoid when financing your jewelry, some jewelry financing options are nothing more than credit cards with lofty names. This means that they affect your credit score just as any other credit card would.

But how would any other credit card affect your score?

In myriad ways, but we'll be specifically focusing on credit utilization (the ratio of used credit to unused credit) in this section. Let’s take a look at a couple of different scenarios to see how your credit utilization affects your score.

No Credit History

If you don’t have any credit history whatsoever, opening a new line of credit through a retailer won’t necessarily hurt your score if you pay off the maxed-out credit card as quickly as possible.

If, on the other hand, you don’t pay it off quickly, your credit utilization ratio will be relatively high for an extended period of time. Since your credit utilization ratio has around a 30% impact on your score, you don’t want this ratio to be high for long.

Of course, if you don’t carry your balance for several months, you won’t have anything to worry about. In fact, the card can even help your score if you pay your debt in a timely fashion.

Good or Bad Credit History

Let’s now assume that you have some credit history, be it good or bad. As in the last case, financing your jewelry via a credit card can have a positive or negative impact on your score.

If you have good credit (and a low credit utilization ratio), this type of financing could drop your score a few points, but only if you don’t pay off the card quickly enough. If you hold onto the debt for too long, your higher-than-usual credit utilization ratio will weigh on your score.

If you have bad credit, the assumption is that you’re not great about paying off your debt. That is to say, you might be living on credit. If this assumption is correct, financing jewelry with a credit card is just going to increase your credit utilization ratio, and that’s not going to go over well for you.

If you can’t tell by now, there’s a moral to this story: Don’t finance anything with a credit card if you can’t pay the balance off.

2. The Average Age of Your Credit History Can Decrease

The average age of your credit history matters to lenders for a couple of reasons. For one, they can more easily evaluate the risk of lending to you if your credit history is long and detailed enough.

And the second reason?

The average age of someone’s credit history, which has a 15% impact on credit scores, tells lenders a lot about how often that person opens up new lines of credit. A low average age indicates that someone frequently opens new lines of credit, meaning that this person isn’t necessarily the most responsible borrower. A high average age indicates that someone rarely (and responsibly) opens new lines.

So if you’re someone who doesn’t want the average age of your credit history to decrease? You might not want to finance that jewelry with a credit card.

3. Inquiries By Lenders Can Hurt Your Score

When you apply for a credit card, mostly all credit card companies will perform a hard credit inquiry in order to determine your credit-worthiness. Some credit card companies may perform a soft credit inquiry but those credit cards generally require some form of credit enhancement (like a refundable deposit).

Soft inquiries are harmless; they don’t affect your credit. Hard inquiries, though, can lower your credit score, but they won’t necessarily do so.

Even when hard inquiries do affect your score, however, they typically only do so slightly and temporarily (hard inquiries stay on your credit report for only 2 years).

4. Cancelling a Credit Card Might Knock Your Score Down a Few Points

The good thing about loans is that you’re done with them forever once you pay off your loan. Credit cards don’t provide borrowers with this luxury; once a line of credit is open, it’s open even after you’ve paid it off. You have to actually cancel it to get rid of it.

But, unfortunately, canceling a credit card can knock your score down a few points in some situations, especially if you have outstanding balances on your other cards. In other words, your credit utilization rate might increase when you cancel the card.

Luckily, you can take steps to prevent a credit card cancellation from lowering your score. You can, for example, request an increase in your credit limit on one of your other credit cards to keep your ratio the same. You could also pay off all of your balances, effectively making your credit utilization ratio zero regardless of how many lines you have open.

How Can You Ensure That Financing Your Jewelry Won’t Hurt Your Credit?

So is there some surefire way to ensure that financing your jewelry doesn’t hurt your credit? Technically speaking, no.

You can (and should), however, take everything we’ve said here today into account when you’re out shopping for fashion jewelry or an engagement ring. Knowing these things will definitely help you keep your credit score healthy.

Gage Diamonds is Chicago’s choice for designer engagement rings, certified diamonds, wedding rings and fine jewelry. Our jewelry payment plans give you the flexibility to find that special something for the important person in your life.

If you are interested in financing your engagement ring, wedding ring or other fine jewelry, please visit our financing page to learn more and apply.