Last week, pressed up against the door on the subway, I overheard the woman to my left say to her friend, who also just happened to be the woman to my right, how she only uses cash these days. "It's cut and dry that way," she said, "I also don't have to worry about messing up my credit." Not long after, waiting for an appointment in the Four Season's hotel lobby, I heard what seemed to be a young couple arguing about their credit rates. This could be juicy, I thought. So, I leaned in. "If you hadn't paid the bill late, again," I heard the woman say to the man, "then our interest rate wouldn't have gone up and we wouldn't have this problem. We need to pay this off and be done with it!" And later, making my way through a large cocktail reception, it seemed everyone was talking about credit. But this time I didn't have to eavesdrop. One man told me how for over thirty years he had great credit, but that his very recent financial trouble had essentially erased all his past years of good credit scores. If that's the case, he said, "Why bother using credit, if when you need it the most, they won't give it to you?"
While I understood their frustrations, I knew that most of their issues would disappear if they knew how to make better use of their credit. In order to have good credit for those occasions that you need it (like a home or car loan), credit needs to be maintained. It's sort of like a healthy body. There may have been a time when you ate well, exercised and got plenty of rest. You felt strong and lean. But your recent behavior has changed. Gone is the morning run followed by a stop at the juice bar, and your clothes feel tighter and your energy low. Credit works the same way. You've got to use it to have it, and you've got to use it well and on an on-going basis to have it be stellar.
So, while it's been wonderful to hear more and more people taking stock of their credit use and control of their financial lives, ceasing to use your credit is just as harmful as making late payments.
Here are some tips to keep in mind to help you from walking away from credit and to keep you building better credit.
- Look at your credit report and make sure all your credit card companies are reporting a high limit. I see many creditors only report the balance due.
- Maintain recent activity on accounts. Take out the store card you have not used in years and use it! If you are going to shop in that store, you might as well use the card they gave you and pay the bill when you get home.
- Pay down your credit card balances to 20% or less of the high limit.
- Monitor your credit to be aware of who is reporting what on you.
- Pay at least the minimum payment due on time.
- Embrace and enjoy the credit you have established over the years. Don't throw it away.