If You Don't Use Credit, You Don't Have Any Credit!

This morning I received a phone call from a good friend, who started by saying, “I have a friend . . .” No honestly she really did say that. Anyway, her friend has paid off her mortgage, paid off the car loan, and paid off and closed her credit card accounts. She is totally debt free.

Knowing that she should be a great candidate, she went to her lender to talk about a new mortgage and found out that she currently has no credit scores. When her lender told her to go get a credit card account and come back in six months, she was shocked. In her defense, she has always had great credit, paid everything on time, and never been overwhelmed by debt. Why would she not be a stellar candidate for a loan?

Credit models have tightened up like everything else and the last six months to a year of your credit history is more important than ever. If nothing is there, then the credit repositories don’t want to recommend you as a good credit risk.

Credit counseling and advice is a big part of what I spend time talking with my customers about. Although I warn them against doing anything while we are in the mortgage loan process, I speak very candidly with them about developing and maintaining their credit history throughout their lives.

So, here is the 20 second version that I recommend to my customers:

• Always maintain at least (2) open credit card accounts.
• Never close credit card accounts unless you are having a problem with that particular credit card. The date opened of the oldest card you have is significant also.
• Use your cards routinely every 3-4 months.
• Always make at least the minimum monthly payment, if you miss the due date, pay it before 30 days passes
• Keep your open balance(s) below 50% of the credit limit(s) of your credit cards, this shows good utilization of credit

One last item of advice, never co-sign for anyone on anything unless the bill is coming to you. The problem occurs that if they get into trouble making their payments, you will always be the last to know and by that time, it has destroyed your credit also.

Credit affects many things in your life including, background checks, security clearance, insurance rates, and what you pay for future loans. Be aware of what affects your credit and know how to maintain good credit.


© 2012 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.