To pick up on our previous post on ‘How Does Income Impact a Credit Score?’ we will be discussing another misconception about debt and how it affects your credit. Many consumers commonly believe the fallacy that if you have no debt you will have good credit. Consumers with no debt will often review their credit scores to find they are not as excellent as they thought even though they do not carry balances.
Although debt is one aspect of the credit scoring system there are still many other factors that go into calculating a score. Your credit score will communicate to lenders the likelihood of you defaulting on a loan. If you have no debt you may be less likely to default on a loan. From a lenders statistical point of view you are even less probable to default on a loan when you have no debt and also when you have had access to bigger amounts of credit over a longer amount of time. Despite this fact, carrying too much debt is definitely a negative factor as it could potentially affect your ability to pay them back.
If you currently have no debt and are looking to improve your credit score consider these basic tips:
Open a revolving line of credit.
If you have no previous history you may want to apply for a secured credit card. Starting with at least 1 revolving line of credit will help. Be sure to apply for a card that reports to all 3 bureaus. With this credit card you can now easily show lenders your credit responsibility of making monthly payments on time and also not abusing your available credit.
Use Your Credit Wisely.
As mentioned above you want to show responsibility. Use your credit cards regularly but not excessively. Buy a tank of gas once a month or maybe buy your pet their food using your credit card. Make a habit of buying things that are necessary and that you can manage to pay your bill in full. Shopping sprees and maxing out your credit card obviously are not advised.
Have a Healthy Mixture of Credit.
The perfect mixture of credit is 3 revolving to 1 installment. Having different types of credit such as student loans, auto loans, home loans, major credit cards and retail cards will show that you are able to responsibly maintain different types of credit. Although a good mixture is a positive, do not open accounts just to increase your score. Keep in mind inquiries and the effect they also have if you are applying for multiple lines of credit.
Establish Long Credit History.
It is best to keep your oldest account opened. Establishing a long credit history will show lenders that you are responsible with your credit.
MSI Credit Solutions provides superior credit restoration and comprehensive consulting services that are reliable and affordable. For any questions or to schedule a free credit consultation, contact us at (866) 217-9841.
*The information in this article has been provided strictly for educational purposes.
