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No Loan Required For High Credit Scores

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I don’t know how many times I’ve seen someone say that in order to have a high credit score, you need to have some debt. While it is true that having some debt will help your score, since continual payment of that debt will demonstrate responsibility, no one should go out and acquire debt with the expressed intent of raising your score. I repeat, do not acquire debt with the sole purpose of improving your credit score because it is unnecessary. Paying the interest on that debt, which will invariably be high especially if you’re talking credit cards, will not give you an effective return on investment – it’s simply not worth it.

Your credit score is a combination of many things but how each part contributes to your score is still proprietary information so you don’t know how your score is truly affected by getting that new loan. Now, if you are on the other side and you’re wondering if a loan will harm your credit score, don’t be concerned. Remember that the credit score is meant to reflect your ability to repay loans and lenders have become very good at determining your ability based on your current debt, monthly payments, and income. If you’re able to repay that debt on time every month and your income permits it, they’ll loan you more money.

If you really really want to pursue this strategy of getting a loan to boost your score, the only suggestion I could give is that you try to get a credit card with a 0% balance transfer offer (there are some 0% balance transfer cards giving $100 for signups). Every month, for the duration of your “loan” from the credit cards, you’ll be making regular monthly payments but there will be interest accrued – this is the theoretical best of both worlds. Now, some would say (I’m one of them) that if you’re able to get a 0% balance transfer card, chances are your credit score is pretty good anyway, so this might be a catch-22 type situation.

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3 Responses to “No Loan Required For High Credit Scores”

  1. John Wilks says:

    I couldnt agree more. You wouldnt believe how many people on Prosper put “trying to build my credit” on their form. Then they ask for $25,000 at 29% for the next 3 years!!!

  2. Foobarista says:

    One other thing is that “debt” need not be an ongoing thing that you pay down. If you actively use a credit card, you have “debt” even if you pay it off every month. Your credit report doesn’t have separate sections showing “debt that is paid off every month versus debt that is being serviced over time”. It just shows “current balance”, which is whatever your CC balance happened to be when the credit card company did its report to the credit reporting agency.

    As for outfits like Prosper: using Prosper to “build credit” only counts if Prosper reports in an ongoing way to credit reporting agencies. Does it report “paid as agreed” as a debtor pays down their loan – which helps the FICO score – or does it only report if someone misses payments or defaults – which obviously hurts it? I don’t know.

  3. Mike says:

    My score from Transunion is 773. I paid off my mortgage 2 years ago. The only debts I have are credit card charges from the current billing cycle, I always pay the balance due in full and on time. Below I have cut and pasted their suggesting methods to improve my score.
    ************ pasted material **********************************
    There are not enough accounts in good standing on your credit report. [TransUnion] Having credit available to you is a sign that you are able to manage your finances responsibly. Lenders like to see that consumers have a large amount of credit available to them, but not so much that they could spend more than they could afford to pay back. If you currently have multiple accounts open with high balances, try reducing your balances below 35 percent of your limits to improve your score. If you do not have many open accounts, consider opening a new credit account or asking your creditors to increase your limits in order to improve your credit score.

    There are not enough bank installment accounts on your credit report. [TransUnion] A healthy balance of credit and loan accounts is key to achieving a high credit score. It is important to build a record of responsible credit use over time with different types of accounts. Consider opening a new account to strengthen your credit report and improve your score.
    ***************** end of pasted material ***************************
    I’m thinking of getting another card, EmigrantDirect’s 1.4% cash back card, in addition to the two cards I already have and have had for about 15 years.

    But I can’t see going through the hassle of getting installment debt I don’t need and have to write an additional check every month.


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