Buying a new computer on which credit?

December 28, 2006 8:22 PM

Buying a new computer: which of these options will be better for my credit in the long run?

I will be fortunate enough to come into a decent sum of money shortly. My plan for part of it is to pay off my credit cards (which are currently close to their limits, thanks to the graduate student lifestyle). I also would like to purchase a new laptop while I can still get a bit of a student discount.

I'm trying to figure out which option makes the most sense in the long run. I'm planning on a MacBook Pro (and as I've used an iBook and Powerbook previously, I am set on that decision). Does it make more sense to wait until I've paid off my credit cards and then use one of them to make the purchase (which would then be paid off as well) or should I use the option on Apple's site to open a new Juniper Visa card to pay for the laptop (which again, would also be paid off quickly).

I'm trying to figure out what will hurt/help my credit. Will it be detrimental to open the new account at all or will it be better in the long run to have that much more credit available to me when I pay everything off? I guess I'm worried that trying to open a new account when I'm practically topped off on two other accounts will create a bigger ding.

Thanks in advance, financial minds of MeFi!

(I asked this anonymously as I don't really like to broadcast my financial information about.)

posted by anonymous to work & money (13 comments total)

The best thing you can do for your credit is pay off the cards you have now rather than getting another one.

You haven't really given enough information to determine whether or not you should use a new card. Do your old cards have good bonus programs? Were you timely in making payments on the old cards? What is your credit like now, meaning are you likely to get a high or a low credit limit on the new card?

One thing I would do to help in the interim is call the number on the back of each card and ask for an interest rate reduction. Quite often, they'll give you one, especially if you start hinting that you're going to open a new card and are considering balance transfers.

Given the limited information you provided, I would probably not get the new card, pay off the old cards first, and use whichever one of those has the best bonus program to buy the laptop.

As an aside, I write a personal finance website basically directed at people like you called The Simple Dollar ... you might find some stuff there worth reading.
posted by krark at 8:34 PM on December 28, 2006 [1 favorite]

It's worth mentioning that you can buy a refurbished Macbook Pro directly from Apple at a generous discount and still get the same warranty as always and still get Apple Care for up to 3 years if you're really paranoid about that sort of thing. I did it and saved myself $1000 off what it would have cost me to buy a new Macbook Pro with the same specs. They're even starting to get Core 2 Duos on the list!

The excellent While Supplies Last has a list and RSS feed that links directly to the Apple site and is updated twice daily.
posted by Null Pointer and the Exceptions at 9:14 PM on December 28, 2006

Seconded Null Pointer's comment. I have two macs, one refurb (PowerBook) and one new (iBook). The new one has been back to the factory twice but the refurb hums along. The discounts on refurbs are very good. I wasn't impressed with the student discounts last time I looked. They somewhere south of 10% if I recall.

Pay off your credit cards. That is always your first financial priority. The fees and interest rates are obscene. It's not worth deferring to save a few hundered now on a laptop.
posted by chairface at 9:26 PM on December 28, 2006

If you have two credit cards that are close to their limits there is a very good chance your application on the Apple Juniper card will be declined. So either pay off both cards and buy the laptop with one of those or pay off the two cards wait at least one full calendar month (basically until those credit cards report being paid in full to the credit agency and then apply for the Juniper.

Those are you two best options.

Cheers and congrats!
posted by crewshell at 10:17 PM on December 28, 2006

If you are receiving more cash than the total amount of the balance on your two credit cards, do your credit the favor of paying off the balance of each of them first. Your credit score is negatively impacted by having too much of your revolving credit in use. Pay for the computer with one of your cards and use whatever cash is left to immediately begin paying down the amount you owe for the new purchase. In fact, you can just overpay the card with the lowest APR and purchase the laptop with it.

If you are receiving an equal or lesser amount of cash than your total balance, then you should put all of that money into your credit card debt. In general, it's best to pay off the balance on whichever card has a higher APR cards first. That is the best thing you can do for your credit. If you do not have enough remaining credit to purchase the laptop, then I'm afraid you're either going to have to stop caring about your credit or choose a less expensive laptop.

If you should need to get more credit, but have bad enough credit that you are denied new credit, your credit takes an immediate hit. If you should get another revolving account and you use a significant percentage of your total credit, this will actually compound your credit issues. Three accounts with greater than 50% of the revolving credit in use is worse than two.

use whichever one of those has the best bonus program to buy the laptop.

Actually, you should use whichever card has the right combination of the available credit, the lowest APR, and the best rewards program. Unless you're going to pay off the entire balance during your grace period (within 20 or so days of having paid off your charge) then the rewards programs often don't make up for the finance charges you'll accrue over the life of the balance.
posted by sequential at 11:23 PM on December 28, 2006

Honestly, you asked for your best option for your credit, so please don't get upset at this:

Your best option for your credit in the long term is not to buy a new computer because it's not a necessity, and you have outstanding debt to pay off. Put the money towards the debt.

The amount of money you save due to your student discount will be nothing compared to the additional interest paid on debt not yet paid off. A laptop is a want, not a need.
posted by twiggy at 11:24 PM on December 28, 2006

To me, it looks like s/he is not asking whether to delay paying off the cards in order to buy the MBP. It looks like the sequence is this:

step A) pay off existing balance;

step B) EITHER put MBP on one of the existing cards OR put it on a new card;

step C) pay off laptop cost "quickly."

Personally I would suggest replacing steps B and C with paying cash for the MBP.

Other note: As for refurb-or-not, I would throw in the caution that refurbed laptops are slightly more likely to have bad pixels, since no laptop mfr (even Apple) will give refunds to people because of one or two bad pixels. Remember most refurbs were returned for some reason. This is why I buy laptops in person (from somebody on Craigslist or at a store where I can see the actual unit I'm buying), but maybe the OP's work isn't really precise/detail-oriented graphical stuff and wouldn't suffer as much from bad pixels.
posted by allterrainbrain at 12:20 AM on December 29, 2006

Agree 100% with twiggy's advice. The best option is to have zero credit. Pay off your cards and save the cash for the laptop. Your student discount, especially with the lowly percentages Apple gives, will be negligible -- and perhaps laughable -- if you charge the purchase.
posted by 10ch at 6:00 AM on December 29, 2006

The best option is *NOT* to have zero credit.

If you're not *using* your credit, your credit scores (evil or not, that's not for me to decide, but reality check: they matter if you want the best interest rates) don't change much. Charging up your card and paying them off immediately doesn't increase your scores nearly as well as maintaining a small balance on your cards.

What matters:

age of credit (don't cancel cards, it lowers your score; if the cards are free to keep, keep them. If you're having trouble avoiding the temptation to use them, fix the temptation problem, don't mask the symptom)

payment history (if you're paying off the cards in full, you're basically making the statement that you don't "need" credit, and your scores will reflect this non-use of the credit that other companies have extended you)

number of cards acquired in a short period of time (don't apply for shitloads of cards, even if you get them all, in a brief period of time. Add a card a year, or so.)

debt / limit ratio (keeping your cards near their credit limits hurts your score for potential lenders -- keeping a small balance on them improves your score faster).

Folks, it's an evil thing, having to pay now (by carrying a balance) to improve your credit score and financial life later (by getting a low rate and 30-year fixed mortgage on your first home), and whether or not you think it's unethical or "wrong" for life to have to be this way, tough noogies: It is.
posted by Merdryn at 7:53 AM on December 29, 2006

Incidentally, if you're only CHARGING small balances per month on a card (< $100), paying it off versus carrying the balance isn't going to change your score that dramatically. it's the bigger purchases that matter. br>
If you're that concerned about interest, get on the phone and ask for a promotional 0% interest on your card for new purchases, buy the MBP, and pay it off over six months.

It's a valuable lesson to learn how to manage your credit cards EARLY in life, and putting them away and never using them is the wrong lesson to learn. I guarantee that it will result in a more difficult time getting an ideal mortgage.
posted by Merdryn at 7:56 AM on December 29, 2006

Of course, if your credit scores are over 720 or so, you can forget all this advice; you're doing fine.
posted by Merdryn at 7:59 AM on December 29, 2006

If you're not *using* your credit, your credit scores (evil or not, that's not for me to decide, but reality check: they matter if you want the best interest rates) don't change much. Charging up your card and paying them off immediately doesn't increase your scores nearly as well as maintaining a small balance on your cards.

Malarkey.

FICO scores are computed thusly:

* Payment history - 35%
* Amounts owed - 30%
* Length of credit history - 15%
* New credit - 10%
* Types of credit used - 10%

That amounts owed is more commonly called UTILIZATION and is a factor of what percentage of your total extended credit is in use. The exact Perfect Number is impossible to know: the method of computing a FICO is a trade secret. However there are what people call FAKO scores (say it out loud) and the general consensus is this:

If you have $8000 in credit and a balance of $8000 that's the worst you can be. Belief is that about 20% utilization is considered the best, although being at 5% utilization doesn't anywhere near approach the negative impact of 95% utilization.

The convenient thing about utilization percentage is that if you're at 0% usage you can change that number almost instantly: you go out and buy something and when that account reports in the next 60 days, bam, new utilization.

If you're at 95% utilization, however, odds are you can't immediately write a check and be at 20%.

Don't listen to people who tell you to finance things because you need to learn something. If you want to learn something useful, learn to only pay for things once. Buy something for the $10 on the price tag, not $10 and then another $2 over the next few years because you couldn't wait for it.

Also learn to recognize the cognitive dissonance involved in saying you should pay interest in order to get a better interest rate. The best amount of interest you can pay is $0.00. Would it be worth $10 in interest to save $1000 in interest on a mortgage down the road? Absolutely. However we need to accept reality: you're already carrying a balance and paying more than you have to.

Take a moment to recognize that you're not carrying a credit card balance "thanks to the graduate student lifestyle," you're carrying a credit card balance thanks to the spending more than you bring in lifestyle. You may need to take loans to accomplish your education, but revolving credit is not the way to do it.

You've dodged a bullet here: the majority of young people who move back in with their parents after college (a number that has exceeded 50% now) claim it's because of financial pressure and a large percentage of those have revolving debt. You've been handed a chance to be out of that hole. Take it.
posted by phearlez at 10:57 AM on December 29, 2006 [3 favorites]

Yeah, you don't need to carry a balance to improve your credit score. Like others have said, you have to have access to credit, and using it responsibly helps, but you can absolutely pay off your credit card bills in full each month and get excellent credit as a result.
posted by trevyn at 4:59 AM on December 31, 2006