Fact & Myth: Building Good Credit

A good credit score tells a lender that you are likely to pay a loan as agreed. Borrowers who are perceived as less risky score the best rates on loans. The way to build a good credit history is to demonstrate that you manage credit well. This means paying as agreed on loans and paying off loan balances as opposed to letting debt grow. Paying down an installment loan can improve your score. For credit card accounts, keeping the balances owed to 30% or less of your credit limit is important. So those are the facts.

An urban myth is that in order to build credit you should not pay your credit card balances in full. The rationalization given is that if you pay off balances your credit report will say the account is not active and this will decrease your score. This is fiction not fact. If you pay balances in full when due, your credit history will reflect the balance at the time the report was pulled. So if you use the account and pay in full activity is demonstrated. Paying credit card balances in full is just fine for your credit and can save you money.


Posted: August 19, 2016

Category: Money Matters
Tags: Credit, Credit History, Credit Scores

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