In today’s modern era, your credit score and profile is as much a part of your identity as your social security number. People often think a lot, even worry or stress about their credit score. Some pay to have it monitored, some check it monthly, even some pay sketchy third parties to help ‘fix’ their broken credit. (Check out my article on “How to improve your credit score”)

Some financial gurus out there put forth the idea that you should cut up your credit cards and never use them again. They espouse the idea that almost even thinking of using credit can force you to slide into debt, which becomes a vicious snowball leaving you poor and in debt. Although I firmly believe that getting into credit card trouble is bad, I don’t subscribe to the idea that no credit is good credit. In fact, I would put forth that no credit is worse than bad credit! 

What your credit is made up of 

To start, let’s review what goes into consideration when determining your credit score. In descending order of importance: 35% payment history (i.e. don’t miss payments), 30% outstanding debt (i.e. don’t carry a large balance…ideally no balance), 15% length of history (the longer you’ve shown to be good with credit the better), 10% inquires and new accounts (too many new inquires may look odd to a lender), 10% types of credit (i.e. mortage, credit card, car loan etc). 

So, assuming you don’t carry a huge balance, make your payments on time, have had a credit card for a few years and haven’t opened a ton of new account recently, your score will be pretty good! Most banks or credit card companies now will let you track your credit score for FREE. Take advantage of those reports and scores and keep tabs to make sure your credit score is where you’d like it to be. 

Ways you’ll use credit

In today’s world, a credit score is a personal identifier, almost like a social security number or your name and date of birth. You’d be surprised how often your credit may be run. Your credit may come up: when applying for a job, when applying to rent a house or apartment, definitely when trying to get a loan to buy anything, other types of applications to prove your trustworthiness. A bad credit score can keep you from getting approved, getting the job, getting the apartment, or can cause you to get a higher interest rate instead of a lower one. Having a good credit score is very important! 

Why no credit hurts

In my opinion, having no credit will look quite odd to someone looking to review you for an application. Unfortunately with so much revolving around a credit score, not having one will look weird! They may not know what to do, and it may not turn out favorably for you. You may get hit with a higher interest rate, or may be required to put down a deposit in lieu of having a credit score. 

Although you can probably still get approved for that loan, still get the job, and rent that apartment, it may require more explanation, more documentation and more work on your part. In my mind, it’s not worth it to maintain no credit history. Sooner or later we’ll all likely have something come up where we need to prove our credit worthiness, so might as well make it easy by having a good credit score!  

How to be responsible with credit

A credit score is a big responsibility, and it’s not easy. One of the easiest ways to maintain good credit is to maintain good personal finances. If your finances are in order, you will always have enough to pay the balance off on time, and won’t miss payments or won’t go into debt. You’ll have enough cash for any down payments required (like on a house), which upon being approved will continue to help your score improve. Want better credit? Get a budget, set goals and stick to it!