How does a Consumer Finance Loan (CFL) Impact My Credit Score? – Episode #110

A CFL or consumer finance loan is an installment loan used by consumers when they cannot use or chose not to use traditional means of credit. Opening a CFL does have a small negative impact on your credit score, more so than financing through traditional credit like credit cards. Why?

Consumer Finance Loans and Credit Scores

When someone opens a consumer finance loan or CFL, the research shows that they are in a more risky credit situation than someone getting traditional credit. This causes a negative hit, although a small one, to your FICO credit score. This impacts the “mixture of credit” factor of the credit score pie. On the reason code list, you can see that codes 06, 37, 47, 98, 99 all involve consumer finance loan behavior.

• 06 – Too many consumer finance accounts
• 37 – Number of consumer finance company accounts established relative to length of history.
• 47 – Number of consumer finance inquiries
• 98 – Length of time consumer finance company loans have been established
• 99 – Lack of recent consumer finance company account information

The best examples of consumer finance loans being used are at a furniture store, or an appliance store, where you pay over time.

You want to avoid these if you can. Here’s where I apply the rule that if you can’t afford to pay for furniture with cash, don’t get it. If you have to finance new furniture, you should not be getting a] something new or b] something so nice. Usually, you can find perfectly nice stuff on craigslist or at goodwill for much less. Even new items at IKEA may save you from having to use a consumer finance loan.