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Do You Have to Go Into Debt to Bring Up Your Credit Score?

May 21, 2008
Most people know that a good credit score can help you in many ways, even if you don't want to be in debt. It gets you better rates on loans for those purchases for which most of us need a loan, such as car loans and mortgages.

But a lot of people assume that you need to owe money for a time in order to get that credit score. How necessary is that?

I'll start by noting that a good credit score is a necessity, unless you earn so much money that you can pay outright for every purchase you ever need to make, including a home. But just about everyone needs to borrow money for such a purchase. You should assume that you do need something of a credit history. It goes beyond purchases. It impacts your ability to rent an apartment, insurance rates and sometimes even your career.

However, being in debt is not the only way to build your credit history. You can have credit cards and just pay them off monthly. That's showing the kind of financial responsibility that lenders want to see too.

Now, if you really, really feel you need to carry a debt to improve your credit score, make it small. As insignificant as possible. At the best interest rate possible. Why should you pay more than you have to if you feel a need to do this?

Do note that I'm not really recommending that, but since many people feel that's the way to build credit I mentioned it.

The biggest trouble with the theory of carrying debt to build a credit history is that it makes being in debt a comfortable thing. It should never be comfortable, especially if it's credit card debt. It's far better to build your credit history without carrying debt if you can manage it.

It is smart to have some credit available to you, but focus more on saving money. A solid savings account can help you through those rough times that would otherwise result in an increase of debt, or even out of control debt.

There are a lot of issues right now with people being so far into debt that they can't get out. If you don't have a credit history now, take a lesson from this and think about how you want to manage your credit score over the long term. A habit of debt is not the smartest way to go about it.
About the Author
Stephanie Foster blogs at http://credit-blog.findcreditonline.com/ about using your credit wisely. Find low interest rate credit cards at her site.
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