| Getting out of debt is important, right? But the idea that you should have zero debt can be misleading, especially when it comes to your credit score. A credit score is simply a history of your debt management practices. If you have no debt, then you have limited credit history, and will likely have a lower credit score. If you’ve just won the lottery and never need to borrow money again, then you may not need to worry about a credit score. But for the rest of us, a high credit score leads to better interest rates and borrowing opportunities. So, it makes sense to build a credit history that credit scoring algorithms like, as follows. 1. Keep your credit usage low and your accounts open. By having a lower than 30% credit utilization rate on any debt, and being active on those accounts for years, you demonstrate consistent debt management, resulting in a bump on the scoring algorithm. You may not be able to pay 70% of your mortgage, but you might be able to pay down your credit cards, or request a limit increase. It’s not an exact measure (mortgages are counted differently), but a good rule of thumb. 2. All debt is not the same. An ideal mix is a blend of installment loans (mortgage, cars, appliances) and revolving credit (credit cards). If possible, maintain both types of debt. Does that mean going and buying a car if you have no installment loans? Only if you can afford it. And if you can, then a small loan might make sense compared to paying all cash. 3. Of course, pay on time. Nothing damages a credit score more than a late payment. If you’re not using your credit cards, consider paying a utility bill with the card, then paying the card bill each month to demonstrate on-time payment history. Are there any quick ways to improve a credit score? See this article for more ideas. |
HOW TO RAISE YOUR CREDITSCORE USING SMART DEBT
