How Can I Improve My Credit Without Using Credit Cards?
That's an excellent question, and it shows that you already understand something about the world of credit -- that using a credit card responsibly is one way to build a credit history.
It does seem sort of like a trap or a scheme, doesn't it? The credit card companies (scourge of the earth that they are) would certainly want you to think that using their cards is the only way to build up a good credit score. But this is simply not the case. Sure, the responsible use of credit goes a long way toward improving your score. But it's certainly not the only factor.
It's getting easier to establish a credit history and score without using cards. In recent years, the Fair Isaac Corporation (which is the company that created the FICO scoring model) has introduced some new scoring methods that take into account your history of paying rent, making car payments, etc. In other words, it's a way to judge the applicant's financial responsibility without the need for credit card usage. So you should make every effort to pay all of your bills on time. By the way, it's called the "Expansion Score" in case you want to research it.
Taking out a small loan from your bank, and paying it back within the time allotted, is another way to improve your score without resorting to the use of credit cards. With a good payment history on loans, your score will increase over time. According to Craig Watts, public relations manager for Fair Isaac, your credit score will "continue increasing until it reaches the ozone layer."
For many people, this is a favorable alternative to using credit cards. For one thing, most people need a loan at some point in their life anyway. Secondly, you'll probably get a better interest rate on a small loan from your bank than you would get from the credit card companies -- these companies often charge a ridiculous amount of interest, after luring you in with a teaser rate. I'm not saying you should take out a loan if you don't need one. But if you do need one, it's nice to know you can strengthen your credit score by paying the loan back on time.
Opening a checking or savings account (and using it responsibly) can also help you establish a good credit history. This is something that mortgage lenders look at as well, when considering you for a loan.
Here's a relevant article at Kiplinger.com you should check out. It offers more suggestions for improving credit without using cards.
Related Q&A:
I hope this helps you out, or at least gives you some things to consider. It's definitely worth further research. I found quite a few articles online when preparing this response, so you should do a little detective work with Google as well.
Labels: credit
posted by Brandon at
8:09 AM
