Keep your credit score high and debt low

By Money Times

Nov 11, 2015 12:53 AM EST

It is a well-known fact that interest continuously accumulate on your credit card amount with time, raising the loan you owe to the credit card company.  Consumers have a solution to this problem in order to maintain a good credit score and to avoid the burden of debt entirely. What they only have to do is use their credit card wisely and follow some simple rules.

As reported by Forbes, Dave Ramsey's website says, "The only way to have a good credit score is to go into debt, stay in debt, and continually pay your accounts perfectly, without adding too much debt or paying too much off. In other words, stay in debt for as long as you can." That advice makes it sound like you have to borrow money and pay interest in order to have a good credit score, and that is simply not true. 

Some consumers believe that by elevating their credit amount, the 'loan' on it will amplify and vice versa. But this statement is clearly considered a myth.

As reported by Nerd Wallet, Ken Chaplin, senior vice president at credit bureau TransUnion says, "This is a myth," He added that, "The key to building good credit is having access to open credit," not necessarily using that credit.

There are some variables mentioned by Forbes, which has to be considered first and on which your FICO credit score is built upon. If you pay your bill on time, it takes 35% of the FICO credit score. Other than that, the amount of loan and utilization takes 30%, the age of your credit amount takes 15%, the possession of different types of credits takes 10% and  application for the new credits takes 10% of your FICO credit score.

According to CNN money, there are 6 steps to better your credit score. First, when you open up the credit card, keep it open as the age of account and time history contributes to a stronger credit score.

"With a credit card, you decide how much you are going to charge and repay of those charges," Griffin said. "Credit cards give better insight into how you make independent borrowing decisions."

Second, become an authorized user on someone else's card if you can qualify a card on your own. Through this, you are authorized to make charges and gets the card's credit history. One disadvantage will be that  if the card holder misses the payments, your scores will be affected.

Third, according to Detweiler, consumers with the highest scores tend to use 10% or less of their available credit. Further, she added that people stays inside a safe zone of only 20-25% credit utilization if they have less negative reports overall.

Fourth, Detweiler explained that most credit card reports are submitted  to the credit bureaus at the closing date, so paying the item off before the bill is due to to helps keep the utilization rate low. But don't make this a habit. "The only danger is if you consistently pay off a balance and it constantly shows a zero balance that could work against you."

Fifth, Some credit bureaus take rent history into account so you need to pay your rent on time.

"In the past, if you failed to make a rent payment it would go into collections. The negative activity appeared for quite a long time," said Griffin. "By reporting positive activity, we are able to help those people who had no advantage of paying rent on time from a credit score perspective."

And lastly, you should know your credit situation.

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