I posted on the ‘FICO score’ a while ago but I received a question regarding this and wanted share my thoughts.
“Which is better on a credit score – a credit card with zero balance, or no credit card at all?”
Before I answer this question I have to lead into it so you know where I am coming from. I am not a big fan of encouraging people to make efforts to make their credit score as high as possible. I do think it is important to make all payments you have so that your credit will be intact and in good shape because it is your electronic reputation. As long as you do that, you do not have to worry about your credit score.
The only thing that a credit score gives you is the ability to borrow MORE money. So essentially what you are saying when you want to raise your credit score is, “I want the ability to borrow more money.” I don’t like the idea of borrowing money period so I usually advise people accordingly to not bend over backwards to get their credit score higher.
FICO scores are calculated based on your rating in five general categories.
Components of the FICO score are:
Payment history – 35%
Amounts owed – 30%
Length of credit history – 15%
New credit – 10%
Types of credit used – 10%
80% of your FICO score is to get in debt, stay in debt, and make payments for a long time. That is the way to improve your credit score, but also the way to be in slavery and have no freedom with your money. So I advise people don’t even play that game. The only thing you need a credit score is for more debt anyways. Everyone in America is so worried about their credit score; yet most of America is living paycheck to paycheck. I want to steer people away from playing the credit score game because I really do think those two issues are connected.
But to conclude to an answer I say don’t mess with it at all. If you are not planning on using the card, then don’t get the card. It really doesn’t affect your “credit score” that much if you had a card with zero balance as opposed to no credit card at all.
The only difference is by having the card in your pocket, if you are like most people…you’d end up using it and pay off the whole balance every month. Then you do this more and more and before you know it the balance is a little higher than you can pay right now so you let it leak on to the next month just a little. At some point you end up elbow deep in debt and its hard to believe you ended up there. This is a common story (and this was my story). So my advice is to avoid the credit cards, they make their money, only way I can ensure its not from me is to not even have them.
