Build your credit score by using your credit cards
You have zero debt, a hefty salary, a fat portfolio — and no credit score.
Yes, it could happen Some 50 million Americans don’t have enough credit activity to qualify for the most commonly used credit score.
My advice: As a precaution, occasionally wipe the dust off your credit cards, give them a little exercise at the local mall and then promptly pay off the resulting bills.
Knowing the score: If you’re a regular reader of this column, we probably think the same way.
Like me, you avoid auto loans, you don’t like using credit cards and you may even have paid off your mortgage.
Given your financial rectitude, you might presume you have a clean credit report and a great credit score — or perhaps you figure it doesn’t matter, because you have no intention of borrowing.
Maybe an emergency will hit, and you will suddenly need a home-equity line of credit.
Maybe you will purchase a second home, which means getting a mortgage.
Your credit history also may influence the rate on your homeowner’s and auto insurance.
For these and other reasons, it is important to keep tabs on the credit reports maintained by the three major credit bureaus, Equifax, Experian and TransUnion.
These reports are used to determine your credit score.
There are different scoring methodologies, but the most widely used is the FICO score developed by Fair Isaac Corp.
If your score is 750 or higher, you should be able to borrow easily at the best rates available.
Meanwhile, getting a great rate can be tough if your score is below 700 — and getting approved for credit could be difficult if you are under 620, says John Ulzheimer, president of Credit.com’s educational services division.
Your FICO score is hurt by things like high credit-card balances, bankruptcy and paying bills late.
Credit problems typically disappear from your record after seven to 10 years, while helpful information — such as the mortgage you paid on time and eventually paid off — can stay there much longer.
Eventually, however, this positive information will likely be purged from your credit history.
"Paying off debts in the past is fantastic," says Scott Bilker, founder of DebtSmart.com.
"But what have you done for me lately?
The most recent things count the most."
Taking credit: That is why you should give your credit cards some occasional exercise.
As the auto loans and the mortgage from your 20s and 30s drop off your credit history, you will want to replace them with a continuing record of responsible credit-card use.
- Summarized from: Flexing credit cards strengthens score, Jonathan Clements, The Wall Street Journal, Feb. 2007
