Sometimes the World doesn’t work in the way you would expect. Certainly when it comes to the all important credit score what appears to make sense is not what helps to get a good credit score and just as importantly maintain that score.
The classic example is a credit card, one of the things that has brought so many people trouble in recent years by their liberal use of them. Anyone who has defaulted on a card has found that their only route to finance is no credit check loans because their score has gone down.
People who have never asked for credit can find themselves in a similar situation simply because they have no credit history. That can show financial responsibility but it is not what can help a credit score because such responsible people will have no credit score and therefore may need no credit check loans when applying for finance for the first time.
Credit cards which are used properly with the full balance paid off at the month end can start to develop a credit score. Many people used to have several; some lost them through default and that hit their credit score. Some closed the account thinking that was responsible. That hits the credit score; it is far better to pay off the card but leave the account open. It is because that account will be part of the history that creates the credit score. If the account is closed the good history goes with it.
There is no information on the record to say why the account was closed. Even if it had been fully in order and cancelled voluntarily by the user the suspicion will be default and the credit score can be damaged as a result. Leave all accounts open and to avoid the credit card company closing it through inactivity use it occasionally and pay the balance off immediately.
Similarly if there is an open account with a credit limit that is not used, it helps the ratio of outstanding current debt against the total facility available to the user. That ratio is a factor in credit score. The ratio is obviously better for someone with five cards, all with $1000 limits and $500 debt in total than someone with a single card with $500 debt and $1000 limit. The higher the facility someone has, and by definition that means the more credit activity but the less it is utilized, the ratio, the better the credit score will be as long as the credit items are being paid off on time.
The types of credit a person has is a factor in a credit score; someone with several high interest credit cards is more of a risk than someone whose borrowings might be spread over mortgage, car loan, personal loan and a single card.
Even in the early days at college, having a credit card can start to create a good credit score as long as payments are on time. It may not need to be used for great spending; indeed it should not be unless the spending can actually be financed. Get a card at college and default and your next approach for finance will see you looking for no credit check loans.
Cards can be used instead of cash for most expenditure so they should be used responsibly in the knowledge that the balance should not get out of control. Regular use and prompt repayment all help the credit score which will decide whether you need to go for no credit check loans in the future where the interest rate is higher than if you have established a good credit score.
It is important to achieve and maintain a good credit score. The alternative is no credit check loans and a higher interest rate on a future mortgage.