Certain types of loans on your credit report could make you seem like a more risky consumer and therefore could end up hurting your score vs helping it.
Why? It’s all based on statistics and who the credit score algorithms have deemed to be risky borrowers.
For example, taking out a furniture loan could actually drop your credit score. That’s because furniture loans are often reported as “consumer finance loans,” which are typically reserved for borrowers with bad credit who are statistically more likely to default on loans.
Therefore, having this type of account on your credit report could be viewed as a negative factor by lenders and credit scoring algorithms.
Alternatively, the financing arrangement may be reported as revolving debt, which will appear nearly maxed out until you make enough payments to get the balance to a lower level.
Motorcycle loans are another example of this. Motorcycle loans are risky investments to lenders since there is a higher chance of the borrower not repaying the loan due to injury or death and a higher chance of the vehicle being damaged, which reduces its value as collateral.
Since having a motorcycle loan on your credit report indicates a higher credit risk, this type of account could also hurt your credit vs help it
Payday and title loans, on the other hand, are typically not reported to the credit bureaus, so these types of loans won’t count toward your credit mix or credit score—unless, of course, you default on a loan and it gets sold to a collection agency, who will then report it as a collection account.
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