Imagine Life With No Credit Credit Cards
Wouldn’t it be great it everyone had a credit score over 800, was debt-free, owned a beautiful house”"and we somehow lived with no credit cards? Unfortunately, that’s not reality, so we’ll share 3 credit score tips, and you’ll know how to raise your credit score. The basis for these tips are the 3 credit score items that companies use in their algorithm to determine how worthy you are of credit.
First it’s important to always pay your bills on time. About 35% of the credit score is based on payment history. What matters most is whether you pay the bills on time. Nothing will run your credit score into the ground faster than being late on payments. After all the credit score is a measure of your creditworthiness, which potential lenders rely on in setting your APR or deciding if you’re even worth the risk.
Second you shouldn’t over-utilize. Some 30% of the credit score is based on how much of your total credit is in use. A rule of thumb is to stay below 50%. For example, if you have $50,000 available to borrow, keep your balances below $25,000. You’ll also steer clear of red flags with each of your creditors, who often decide to lower credit limits and even raise APRs if utilization gets too high. Lowering your limit also can initiate a vicious cycle since it causes the utilization rate to go even higher.
Third you should work to build up a credit history, diversify your debt, and don’t apply for more credit than is prudent. The other 35% of the score is based on these factors, with each contributing 10-15%. Like most things in the world of finance, the credit system rewards seniority and longevity. If you’ve been a good customer with a credit card for 15 years, creditors will be willing to loan you more money at a lower APR than, say, a 21-year-old with no credit credit cards.
It matters what type of debt you owe. Having your debt in a mortgage is better than if all of your debt is in some kind of revolving debt, such as credit cards. Creditors, just like investors, like diversification. They will reward you if you spread your debt. Don’t forget that if you apply for credit, an inquiry will appear in your credit history, therefore lowering your score by a few points. This is not as important as the other factors, but it impacts your score.
For a person who does not have huge financial requirements, the golden rule to raising your credit score and keeping it consistently high is to borrow only when it is a genuine requirement and to stick to repayment schedules. However, you need to have a credit card if you want to raise your credit score. The basic objective of the score is to help you get credit at a lower rate, as a high score increases your reliability and integrity.
Read how to raise your credit score based on 3 credit score items that companies use to determine your creditworthiness. Payment history plays a major role in increasing your credit score and thereby, creditworthiness. So pay your bills in time. No credit credit cards do not help much in increasing your credit score. Borrow only when necessary. Ideally, never use more than 50% of your available credit limit at any given point of time. High utilization, leads to higher interest rates or lower credit limits, thereby increasing utilization again. Diversify your debt. So unless you have huge credit requirements, follow these tips to keep a high credit score.
- Daniel Lesser
