Let’s assume you pay cash for EVERYTHING. Is your mortgage paid off? Do you own a credit card? You pay your bills on time and pay them in full. Everyone sees you as financially sound. If you were to access your credit score, you might be surprised at what you will see. You might find that your score is not very good. Why is this?
For many US consumers there is a common misconception going around that if you live “debt free” that you will have good credit.
Sounds like a broken system, right? Wrong. Credit score means just that. It is a score that tells lenders how likely you are to default on a loan. If you carry no debt, you are probably less likely to default, but from a statistical perspective, if you have access to large amounts of credit over a long period of time, you are even less likely to default on a loan.
This is why credit scores are not necessarily based on your debt. So how can you boost your credit score and still remain a “cash on the barrel” consumer?
You work the system. What system? The credit system.
You apply for a few different types of credit and you use them responsibly. You can pay for gas with a credit card, and your groceries with another, just pay it off at the end of the month. Creditors want to see that you can use their “product” —-credit, and then pay it back ‘on time’. If you follow these guidelines you will have no problem improving your credit score.
Even though it appears to be a good method to live life paying for cash, if you want to boost that credit score….you are going to have to use credit….to benefit you.