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Why do you have to go deeper in debt and open more credit accounts to improve your score?

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Anonymous
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Why do you have to go deeper in debt and open more credit accounts to improve your score?

I have 3 credit cards. Two paid off all the time. Car is paid for. Have no debt and pay all my bills on time. But to raise my score I'm told to open more credit cards and get a revolvong credit loan. Why is this? Seems to me this is counter productive and defeats the pupose. I thought the idea was to be responsible and stay out of debt, not acquire more. My credit is good, but to be better I need to go into debt? This makes no sense to me. I keep my accounts current and have good crediit, but I should have an additional car payment that I don't need to improve it more? **bleep**?

Message 1 of 13
12 REPLIES 12
Anonymous
Not applicable

Re: Why do you have to go deeper in debt and open more credit accounts to improve your score?

To show your responsibility handling many types of accounts.

Message 2 of 13
Anonymous
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Re: Why do you have to go deeper in debt and open more credit accounts to improve your score?

Haven't I done that by paying off previous revolving credit accounts and paying my credit cards on time? My car was paid on time every month for 7 years. Another revolving creidt line was paid on time until it too was paid off. Must I always be in debt with a car payment? Isn't 7 years of on time never missed payments enough?

Message 3 of 13
Anonymous
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Re: Why do you have to go deeper in debt and open more credit accounts to improve your score?


@Anonymous wrote:

Haven't I done that by paying off previous revolving credit accounts and paying my credit cards on time? My car was paid on time every month for 7 years. Another revolving creidt line was paid on time until it too was paid off. Must I always be in debt with a car payment? Isn't 7 years of on time never missed payments enough?


It's an ongoing thing as past 10 years after closing an account your FICO score has no memory.

Message 4 of 13
Anonymous
Not applicable

Re: Why do you have to go deeper in debt and open more credit accounts to improve your score?

It's only bee 2 years since car was paid off. All credit credit reports show 7 years of on time, never missed payments. That's ridiculous. I shouldn't be punished for being responsible and paying off my bills.

Message 5 of 13
Anonymous
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Re: Why do you have to go deeper in debt and open more credit accounts to improve your score?


@Anonymous wrote:

It's only bee 2 years since car was paid off. All credit credit reports show 7 years of on time, never missed payments. That's ridiculous. I shouldn't be punished for being responsible and paying off my bills.


It is what it is. Paying something off is a personal accomplishment.

Message 6 of 13
coldnmn
Mega Contributor

Re: Why do you have to go deeper in debt and open more credit accounts to improve your score?

It sounds like Credit Karma don't believe the recomendations or the fako score. It's just good to monitor your credit file inquiries etc. Three credit cards are more then enough.

Discover IT $17k / US Bank Ace (VSig) $13.5K / US Bank Cash+ (VSig) $13.5k
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CareCredit 5k / Husq $5k / Cap1 QS $4.5k / Barclay Ring $5.35k / Citi DC (WMC) $12k
Gardening Date 7/01/16 / MyFico 08: EQ 801 / TU 777 / EX 771 / 06/08/17
Message 7 of 13
Anonymous
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Re: Why do you have to go deeper in debt and open more credit accounts to improve your score?


@Anonymous wrote:

It's only bee 2 years since car was paid off. All credit credit reports show 7 years of on time, never missed payments. That's ridiculous. I shouldn't be punished for being responsible and paying off my bills.


 

 

We don't get to decide when or how credit scores are calculated. The system might be flawed and maybe it can be changed over time, but for now, out only choices are to either work with the system or ignore it and use cash. 

 

A few points I need to make to clarify some mistaken assumptions:

 

1. You don't need to get revolving loans that collect interest. Having a single credit card is enough, though having 3-5 is better. Use one card, let a statement balance post and pay off the balance fully before the due date. Using a credit card will help your score because it shows that you can responsible use an additional type of credit. For more advanced purposes, you can determine the reporting date of your cards and try to have all of them post zero balances and one card post a 1-9% balance on the reporting date. You should never be paying interest on these balances if you do it correctly. 

 

2. Having more than one type of loan and paying it shows that you can responsibly handle multiple types of loans. Over time creditors have determined that people who responsibly manage multiple accounts over a long period of time have lower default rates that people who use fewer accounts. Your credit mix is important. 

 

3. The only interest you ever really have to pay is an installment loan interest to maximize your score. Installment loans that are fully paid are great, but having one installment loan that is open will help maximize your score. You don't have to do this as my parents had 800+ scores with no installment loans just a year ago when their car/home mortgage were both fully paid. No installment loan will hurt you a bit, but you can have a good score without one. If you want to maximize your score, get a small instalment loan (even just 1k) and pay it off slowly. You will pay a little interest, but your score will improve. 

 

 

Whether you choose to play the credit "game" or not is your choice. If you choose not to do it, prepare to use cash for all purchases including your home or prepare to pay higher interest rates and thus lose more money in the long-term due to your lack of established credit history.

Message 8 of 13
takeshi74
Senior Contributor

Re: Why do you have to go deeper in debt and open more credit accounts to improve your score?


@Anonymous wrote:

Why do you have to go deeper in debt and open more credit accounts to improve your score?


You don't have to go deeper into debt.  You do have to use your credit accounts.  Those are two entirely different things.

 


@Anonymous wrote:

But to raise my score I'm told to open more credit cards and get a revolvong credit loan.


Source?  The general recommendation is at least 2-3 cards for scoring purposes.  It looks like you're already there.  An installment could help your credit mix but I'm not entirely sure on a revolving loan.  Always consider your source.  You may need to take the recommendation with a grain of salt.

 


@Anonymous wrote:

Haven't I done that by paying off previous revolving credit accounts and paying my credit cards on time? My car was paid on time every month for 7 years. Another revolving creidt line was paid on time until it too was paid off. Must I always be in debt with a car payment?


Payment History is the biggest factor but there are other considerations as well.

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

 

You don't always have to have a car payment but having an active installment account helps with your mix of credit (Types of Credit Used).  However, no one recommends adding an installment that serves no purpose for you.

 


@Anonymous wrote:

Isn't 7 years of on time never missed payments enough?


If you're happy with where your credit currently stands its enough. If you're not happy with it and want to improve if it's not enough. Enough is for you to determine.

 


@Anonymous wrote:

I shouldn't be punished for being responsible and paying off my bills.


You're not "being punished" for anything.  Again, if you want more credit extended to you and your credit doesn't support it with creditors then you have some work to do,  If you're happy with where you are then stop worrying over whatever recommendation you mention above.  The recommendations are there if you want to make improvements.  You can't just assume that your credit is perfect and deserves and 850 just because you've made on time payments for 7 years.  7 years is not a long time in the credit world.  Further, we're all subject to the exact same system.  You're not being singled out or punished so what you're expecting is really special treament.

Message 9 of 13
Anonymous
Not applicable

Re: Why do you have to go deeper in debt and open more credit accounts to improve your score?

I love it when people say

 

Them: "My credit is perfect, I pay my rent and utilities on time"

 

Me: "What about credit cards?"

 

Them: "I don't believe in credit cards."

 

Me: *Shakes head*

Message 10 of 13
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