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Is being debt-free always a benefit? Looks like a silly question. Kind of like asking if being healthy is an advantage.

Living without a great deal of unmanageable debt is certainly a fantastic financial position to be in, however we get a number of blog remarks from readers who think that credit ratings punish individuals who opt to be debt-free.

  • Sounds like punishment for not being in debt. So glad I removed all those credit cards … -D
  • My credit rating: Money just. -N. PA
  • You cannot succeed with FICO scores, particularly if you remain debt-free and live underneath your ways. -Codeine P

And they are not alone, as even some high-profile consumer supporters preach that credit scores discriminate against individuals who choose to stay debt-free.

[Related Link: The 11 The majority of Usual Credit Concerns]

The fact is, the truths are not on their side.

Studies going back more than 20 years, using tens of millions of consumer credit reports to determine predictive customer behavior, have actually consistently discovered that lesser amounts of consumer debt bring about reduced credit threat.

While having absolutely no percent credit usage (revolving balance/limit ratio) and all loans paid off will not always guarantee the highest possible scores – many various other factors likewise go into a credit rating – a credit report absent any debt or late payments can easily be anticipated to provide the kind of credit score that’ll get some of the best rewards programs offered – which saves you money.

[Associated Link: Can You Really Get Your Credit Score for Free?]

The following faqd, and their answers, address the issue of whether you can stay debt-free and at the same time have a great, or even wonderful, credit rating:

Do you’ve to owe money to have a great credit score?

In a word: no.

In reality, credit ratings look really kindly on credit reports consisting of nothing but charge card and loans with no balances – and spotless repayment records – as long as several cards remain through a minimum of occasional use.

Do your charge account have to be active to have a rating?

While ratings don’t such as to see a lot of financial obligation, they do like to see some amount of credit use, or ‘task.’

With cards, the more often they’re used, the less likely they’re to be closed due to inactivity by the card issuers.

Do you need to have a charge card to have an excellent credit rating?


While a well-managed charge card or two can certainly contribute positively to your score, without a credit card, an excellent credit rating can still be developed making use of any sort of credit that’s stated to the credit bureaus, such as loans, house equity lines of credit and retail cards.

Does it help your rating to pay finance fees?

Not one bit.

Neither the finance cost rate nor the quantity appears on a credit report. Naturally, account balances not paid completely each month could consist of finance fees, however that level of information doesn’t appear on the credit report.

Will a debit card or prepaid card aid my credit rating?

No – sorry!

While they might look and typically operate like a credit card, making use of a debit or prepaid card is essentially investing your own cash.

With credit cards, you’re being extended credit, even if just briefly. For this reason, debit and prepaid cards do not appear on credit reports, and aren’t consisted of in credit ratings.

To be clear, paying all credit card charges before finance fees are incurred is the goal below, with many customers using a few of the following methods for using credit to their advantage, while remaining debt-free:

  • Paying for your charges the exact same day you make the investment making use of electronic banking. Or, if it’s a division or other retail card you are using, you may have the ability to make the repayment right then and there in the store. With this technique, the balance for the account will appear on your following statement as zero, while preserving a better payment history and absolutely no percent credit usage.
  • Prior to the next statement date, making numerous smaller sized repayments for ease. As long as all charges are paid by the next due date, balances will be reported as zero, payments as present, and utilization as zero percent.
  • Waiting for the charges to appear on your next statement, and paying the whole balance before the due date on that statement – either in one or multiple payments. While not quite as helpful for your rating as the above techniques, due to your credit report now showing a balance for the account, as long as you pay by the due date on your statement you’ll still stay clear of finance fees and continue to be basically debt-free.

[Associated Link: The First Thing You Need to Do Before Applying for a Charge card]

A reader even wrote to us with her own method for preserving a fantastic credit rating while remaining debt-free:

‘I regularly utilize credit cards for almost everything and pay the balance off monthly. This previous year, I bought a computer and some various other things with the points I’d collected. My credit rating is 809 which gives me comfort.’ – Donna