Holiday Shopping: Does Layaway Affect Your Credit?

With the holiday season right around the corner, shoppers are hitting the stores and their wallets in a big way. For many shoppers who are on a tight budget, layaway seems like an appealing option; you can buy the gifts you really want to give now without having to pay everything up front, pay interest or go through a credit check. However, what happens if you don't make your payments on time? Can layaway potentially affect your credit score?

Before we get to the answers to these questions, let's review how layaway works. When putting an item on layaway, you put down an initial minimum deposit and you'll generally pay a small service fee (generally $5 to $15). After that, you'll have a certain amount of time (generally one to three months) to make payments toward the item's total price. Once you've paid in full, you can take the item home with you. If you wind up not making your payments, your layaway will be cancelled and the item will return to the store's shelves. You also might be charged a small cancellation fee.

Even if you don't make your layaway payments, this information may not be reported to the three credit bureaus. Therefore, using layaway has a neutral effect on your credit score.

However, the downfall to using layaway is that you run the risk of paying too much for an item as many stores will lock you into the full price and then later put the item on holiday discount.

For now though, layaway is a suitable option for buyers who are looking to shop this holiday season without having to put a strain on their credit card debt or without having to prove they have good credit.