It is a catch-22: To be able to build credit, one must have some credit to go by. However, several creditors won’t lend to customers with thin or non-existent credit histories. If your credit score is exceptional but you’ve been denied for a mortgage, for instance, it’s probably because you don’t have enough active credit irons in the fire. Article source – Understanding the down side of avoiding credit by MoneyBlogNewz.
The super-responsible person never has fun
Anybody who is super responsible with credit may not do as well off as they think. Paying off student loans right out of the gate, staying away from excessive use of credit and generally living debt-free will save money in the long term, however some creditors do not view the credit-phobic kindly. There are a lot of people that use credit, but have many choices to select from. It can look bad to have credit inquiries too often though.
Having little credit history and being a serial charge card applicant can impact credit negatively, says Rod Griffin, public education director for the credit bureau Experian. Showing an ability to handle a reasonable number of open, active credit sources over time is paramount in illustrating credit-worthiness to creditors, including mortgage loan companies.
Pay off loans, however keep some credit active
The argument Griffin has is that it is not bad to pay off loans early. This is regardless of what credit experts say. You’ll have good marks stay for about 10 years on a FICO report. At the exact same time, only seven years are needed to get rid of negative marks. Some consumers will pay off loans quickly. This makes some creditors less likely to lend. Some creditors will say no to a credit application just because there are not three accounts open and active for about 24 months.
Only some charge cards should be used
Do not take on a lot of charge cards if you’re a college student that is just beginning to build credit. You will find some students that are responsible enough to handle the card. The one or two cards might help the students in these cases.
Change is taking place though. Griffin explains that this could change everything. The ability a young person has to building credit is overlooked due to the new Charge card Act the Obama administration started. By restricting credit card company access to college students, some experts see more limited opportunities for building credit history.
Using just money can hurt credit
You will not be building credit with a money only lifestyle, even though you also won't have debt. When in an emergency, use an installment loan and no credit check loan while also having credit accounts that you pay on each month. You can avoid building up too much debt on a charge card with these goods even though they won't make a difference on a credit history without reporting.
Understanding the Credit card Act