Not Using Credit Does Not Protect Your Score or Report
If people have struggled with credit in the past, they may think that avoiding credit all together is the answer. Avoiding credit does not protect you from having a low score or give you a good report. So; instead of having a bad rating, you will actually have no rating at all. When you have no credit history, lenders cannot determine if you are a credit risk. When you have no transactions, there is nothing for lenders to report. There are a few scoring models available now that track your payment activity and not just your overall credit, but having good to excellent credit is still what opens more doors on your financial journey.
Using credit wisely is the real key to navigating the credit scoring and reporting process as well as helping you to manage your debt properly. If you have high interest rates and want to get the rates lowered, make sure you have at least 12-months of consistent on-time payments before asking for a decrease. Late payments not only add fees and penalties, they can also be a breach of contract and cause your interest rates to skyrocket. Pay more than the minimum when you can or set a pre-determined amount to pay extra on at least one of your debts while still making on-time payments on the rest. Also; when making these smart strides, make sure you are getting the credit for your good behavior by ensuring that any credit cards or debt are actually in your own name and not tied to anyone else.
As you are aggressively paying off your debts, be sure to keep good records so you always have proof of payments should you need to provide evidence. Keep all correspondence, receipts, and bills until the debt is satisfied. Then after; keep only the final notices of the debt being paid-in-full, zero-balances, or letters stating you have met your obligations. These documents should suffice for long-term recordkeeping. Credit does not have to be a drain on your finances, so do not be afraid to use. Not using credit does not protect you from having a bad score or report and not having any credit can sometimes be a hinderance. The major key to having excellent credit is to be disciplined and to use credit wisely.
AJM Financial, LLC.