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Don’t Swear Off Credit Cards After Credit Repair

Posted on March 17, 2011

Very often people get in trouble with credit cards and promise to stay away from all credit cards and other debt instruments forever. The problem is that you may not build the best credit score by making this choice. After all, how are you going to rebuild your credit score if you don’t have any credit cards or loans to pay.

You Must Borrow Money to Borrow More Money

When you apply for a credit card or loan, the bank looks at your past credit history to decide whether to approve your application and at what interest rate. Credit repair may remove some of the negative information from your credit score, so while that won’t hurt you, your lack of new credit may hurt you. Lenders often want to see you with a certain number of active accounts within recent history before they’ll give you a new credit card or loan. If you don’t have this recent credit experience – positive or negative – your loan may be turned down.

You may think you won’t need a new loan after credit repair, but most people will need to borrow money again to buy a new car or house. Chances are you don’t have the money on hand to buy one of these without getting a loan. Using credit cards responsibly can help improve your chances of loan approval.

Your Credit Score May Plateau

Since you’re trying bring your credit score back from a low point, you’ll have to add some positive payment history to your credit report to raise your credit score. Credit cards may seem like a lot of trouble, but they comprise a large part of your credit score. Having just loans on your credit report doesn’t tell the entire story about your creditworthiness and your credit score may reflect that. If you swear off credit cards, you may see your credit score reach a certain point and stop improving.

Use Credit the Smart Way

Credit cards themselves aren’t necessarily bad. It’s the way they’re used that can cause problems. The key to using credit cards to build a good credit history is to charge only a small amount each month and pay the balance in full. You don’t have to carry a large balance to build a good credit score. In fact, carrying a high balance is more likely to hurt your credit score than help it. Charge only 30% of your credit limit to earn points in the credit utilization area.

Check Your Credit to Learn How to Improve It
When you check your FICO score, you’ll also get an analysis of your score. The analysis will tell you what factors are negatively affecting your credit score and you’ll also get a recommendation on what you can do to fix your score. If the problem is that you don’t have any open and active credit cards, then you can open one or two new accounts to give your credit report some balance. Remember to use your credit cards wisely to keep your credit score on track.

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