Too Many Consumer Finance Company Accounts will lower scores

Finance companies provide higher cost loans to those left out of mainstream banking. It serves an important role in extending credit to consumers who may not be eligible for traditional bank or credit union loans.

You may think that you are building your credit history by taking out a loan with a finance company. If you have no credit, then that may be one way to show activity. The problem with this approach is credit bureaus may actually punish you for taking out loans through finance companies. This may be true even with a perfect repayment history.

“Too Many Consumer Finance Company Accounts” Credit Score Risk Factor Codes
Equifax 6
Experian 6
TransUnion 6
NextGen T3

Your history of taking out consumer finance loans may cause subsequent credit requests to be denied. Your prospective lender may cite too many consumer finance company accounts as a reason for denial.

Credit bureaus know that consumers that use finance companies tend to have higher rates of default. They also know that the higher interest charged by finance companies can increase the default risk of their clients. The higher the interest, the more likely the debtor is in a negative equity situation or simply decides they will stop paying.

Taking out a finance company loan is not a bad thing if it helps you accomplish your credit needs when other options fail. You should understand though that it may not appear as favorably on your credit record as you might think.

The first finance company account would normally have a rather negligible effect on your credit, likely costing you 2-6 points depending on the scale of your credit history. If you have at least two consumer finance company accounts in your recent credit history, you can expect a more significant negative impact on your scores. A drop of more than 10 points is likely. Heavy use of consumer finance company loans is a common trait of debtors with high default rates. As a result, you are penalized if you also demonstrate this consumer behavior.

The goal of consumers should be to make themselves marketable to traditional lenders. Banks and credit unions often have much higher thresholds for creditworthiness than finance companies do. As a result, you may need to focus on the components that have the biggest impact on your credit scores so that you might improve your credit.

It is most likely that any points that you might be docked on your credit score may come from the 10% of your score that is calculated based on account mix. Credit bureaus generally provide the most points to consumers with at least one or two major credit card accounts and one or two installment loan accounts. Finance company loans however do not benefit you.

Credit bureaus assume that those who use finance companies lack the lower risk attributes sought by banks and credit unions. It may be possible that you do qualify for traditional loans, but instead choose to borrow from higher cost lenders. Either way, you are taking a penalty on your credit scores when you open finance company accounts.

If you have been denied credit and having too many consumer finance accounts is a reason, it may be a hint that you should limit your use of finance company loans to only those loans you need the most. You should also meet with your banker or credit union representative to find out what steps you can take to meet their eligibility requirements.


Having too many consumer finance company accounts may cause denial of credit. It is listed as Code 6 on FICO-based credit scoring products. It is code T3 on NextGen scoring products. For more information on credit scoring, see the complete list of credit score factors.

It should be noted that exact impacts of credit scoring factors can only be estimated, since details of credit scoring is a highly guarded secret of Fair Isaac Corporation and major credit bureaus alike.

Kenneth Long
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Kenneth Long

President at Debtors Unite
Kenneth Long is President of Debtors Unite, Inc. as well as President and Vice Chairman for Vision Credit Education, Inc. He served as a regional coordinator for the North Carolina Saves campaign. Long co-founded the Wake EITC Coalition along with Family Resource Center of Raleigh.

Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.

Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.

In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.

Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!

Favorite quote:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

Thomas Jefferson
Kenneth Long
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