By Susan M. Keenan …©2010

How many times have you seen a store advertise special deals such as ”No payments for 6 months” or ”No payments for one year” on any store purchase of a certain value or higher? Probably, you have seen these advertisements at least once a month if not more frequently.

Plus, it sounds like a good deal, doesn’t it? After all, the store is giving you permission to purchase items and take them home without paying for them for an entire 6 months or a year, depending on which deal you are taking advantage of at any given time. Moreover, the store even adds in the offer of ”no interest” on the purchase if it is paid in full by the due date. What could possibly be wrong with this picture?

Is this actually a good deal for you? How does it affect your credit score? Is it going to benefit your financial health or hurt it? Is it really wise to buy something when you don’t have the money to pay for it? Do you actually believe that this incredible deal of ”No payments for 6 months or one full year” is designed for your benefit?

Unfortunately, while this might sound like a good deal, for most consumers this is not a good deal at all. For some consumers, their credit scores are going to go down. This could further complicate their lives if they are planning on obtaining a home loan or installment loan in the near future.

For other consumers, they are going to have difficulty paying the debt off when the bill comes due. Perhaps they forget that this bill even exists until they receive the final reminder. Maybe they lore their job during this waiting period and no longer have a steady income to rely on for such payments. Whatever the reason is, some consumers are going to experience problems when it comes time to pay off this debt. If this is the case, they would be better off never even buying the merchandise despite the good deal.

A deal like this is more likely to affect a credit score negatively rather than positively. In order to understand why, you need to look at the utilization of credit. Ideally, a healthy rate hovers under 30% of your available credit. If your utilization rate goes any higher than 30%, it can impact your credit score negatively. For consumers with relatively good credit scores, a negative impact might not occur until the utilization rate goes above 50%.

When you open a new credit account to take advantage of one of these deals, the store typically gives you a credit limit equal to the value of the merchandise that you are purchasing. For this particular store credit account, your utilization rate is 100%. This high rate is going to raise your overall utilization rate, negatively impacting your credit score by reducing it and damaging your financial health at the same time.

Another aspect of taking advantage of a ”No payments for one year and no interest” type of deal is that the application submitted for the consumer is considered a hard inquiry for credit. This has the potential to reduce an individual’s credit score. If your credit score is already lower than a consumer would like to see it, this would be a bad move to make.

On the other hand, some consumers are going to receive the benefit of saving money with a ”No payments for one year and no interest” type of deal. When the bill comes due and payable, they are going to pay it off in full, saving all kinds of money but not having to pay any interest on the debt. If you do decide to take advantage of an offer to buy merchandise without making payments for 6 months to a year, put away 1/12 of the full price each month so that you have the money to pay the debt off in full when the bill becomes due and payable.

Intro: Have you been tempted by promises of no interest or no payments on purchases that you make now? While this might sound tempting, is it good for your financial health?