Why Do I Need to Have Some Credit Card Debt to Have Good Credit Scores?

This might surprise you, but credit scores were was not created for your benefit.

The credit card companies, banks, and lending institutions would not prosper if each of us used our credit lines and paid them off in full every month.

Creditors charge interest and that’s how they make their money.  They make the most money from individuals with lower credit scores because they can charge those folks higher interest rates.

Your credit score calculation is designed to help lending institutions to determine how much of a risk you are. Therefore, the higher risk you are, the lower your credit score is, and the more interest a lender can charge you.  If you have NO credit, then you are deemed a higher risk (and thus you’d have a lower credit score).

So, the key is to actually use credit and use it wisely.  Keep your credit balances no higher than 25-35% of the card limit, make your payments on time, and every few months pay the card off in full and “start over” with that card.  Do NOT close the account when you pay it down to a zero balance, just keep using it responsibly.

If you have any questions, feel free to contact our office.