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Is it Possible to Have a Good Credit Score without a Credit Card?

Credit Score

Many individuals, after a difficult couple years, have decided to abandon credit cards altogether and live a cash-only lifestyle. If you, too, are fed up with the credit card industry and all of the challenges that this industry has faced over the past two years, you may be tempted to also abandon credit cards.

But is this the right decision to make?

The Effects of Closing your Credit Card Accounts

Let’s first assume you have credit cards to begin with and you cancel them. Your available credit comprises 30 percent of your credit score, so closing credit card accounts will have an adverse effect on your credit score. In fact, having absolutely no utilization percentage is worse than having a low utilization percentage caused by high credit card balances and low, available credit.

You can be certain to have a better credit score by just having a small balance on a credit card.  If you cancel your credit card and have no other credit cards open, you will likely lose points on your credit score.

In addition to open credit, though, is your credit history. In other words, if you don’t have any other open accounts, but you have a long length of credit history, you may still maintain a strong credit score.

Other Items Affecting your Credit Score

However, your credit score is not only determined by the use of credit cards. Other items, such as auto loans and student loans, can help you maintain a strong credit score.

Keep in mind, though, that if you fail to have any other type of loan and you don’t have any credit cards, you could fail to have a credit report at all. The minimum scoring criteria, according to FICO, is determined by at least one open account that has been updated in the past six months. In other words, if creditors don’t report anything on your credit score for six months, you could fail to maintain any type of credit score at all.

Your best bet? Keep at least one credit card open and make a point of charging on that card at least three to four times a year.

Taking Responsibility – How the Credit Crisis has Changed the Way we Use Credit Cards

Introduction

It seems like it was just yesterday when the economy was strong, the housing market was booming and credit was flowing like water. Credit was not only easy to come by, but downright effortless at times.

Even those individuals with poor, little or no credit were being inundated with credit card offers. Fast forward to just a few years later and we find that the economy is weak, the housing market is flat and credit isn’t all that easy to come by anymore.

The recession has affected us all in one way or another. Even if we are fortunate enough to have our jobs and our home, we are all discovering that obtaining credit isn’t for just anyone anymore.

Credit card companies, having been burned in the past by easy credit and delinquent credit card holders, are now recognizing that they must become more choosy with whom they will extend credit.

How the Credit Industry has Changed:

• Don’t expect to obtain personal loans and auto loans without providing documentation regarding your income and your credit worthiness.
• Don’t expect to receive credit of any kind without a strong credit score. If your credit score is weak (anything below 700, according to many industry standards), order a copy of your credit report from all three of the credit reporting agencies and make it a point to begin repairing your credit.
• Don’t expect to miss your credit card payments without being penalized. Credit card companies have adopted much stricter rules and regulations regarding delinquent credit card holders in an attempt to encourage individuals to pay their credit cards on time every month. In fact, many credit card companies now raise a card holder’s interest rate if he or she misses just one payment.
• Don’t expect to obtain loads of credit if you have too much debt. Now more than ever, credit card companies are especially aware of an individual’s debt-to-income ratio. In fact, they are using this number as a guide when extending credit.

Calculate your debt-to-income ratio (take your current income and consider how much of that goes toward paying debt each month) and, if it’s above 30 percent, consider ways in which you can pay down your debt before applying for a credit card or personal loan.