Hello friendos, and welcome back to another CoolKid PSA post. Credit score can be stressful and even confusing to some people, so I'd like to clarify a few facts about the responsible use of credit, paying interest just to bump up your score, and the concept of diminishing returns. Please note, this guide assumes you've at least glanced through the "credit" wiki.
- Responsible use. Start here if you have no credit history or really bad credit. Get a secured credit card, preferably one which you would like to use as a regular credit card as well, and put all gas/groceries/misc living expenses on it. Pay off in full every month to reap the cash back/travel miles/points without paying interest. Repeat until you get upgraded to unsecured.
Myth time!: Many people believe carrying a small balance on your credit card every month benefits credit score. Untrue! If anything, it decreases your score by increasing usage %
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Paying interest just to bump your score. I've seen several people, even users of this forum, advocating for taking out a small personal loan or car loan for the sole purpose of increasing credit score. This is entirely irresponsible. While it does work, paying interest in order to bump your credit score doesn't pay off. Why, you might ask? Because of the concept of...
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Diminishing returns! If your score is anywhere within the 750s/760s range, you already qualify for the best deals, lowest interest rates, etc. Please note, even if you are lower than this, I still wouldn't advocate for paying interest.
Myth time 2: The Electric Bogaloo!: Many people believe that using the above tactics to increase credit score before a big purchase, such as a car loan or mortgage, will pay off in the end due to a decreased interest rate on that bigger loan. a) Car loans are getting lower and lower, with many credit unions boasting a 1% or even 0% interest rate with a semi-decent score. b) Mortgages can be refinanced. Also, in my opinion, it is irresponsible to purchase a home without at least a 15% down payment, if not 20 to dodge PMI. If this is your situation, just keep renting. See my other post on "Rent is not throwing away money" for more on this.
Hope this helps some folks out there, and Merry Christmas.
Submitted December 13, 2017 at 10:43AM by thatonecoolkid99 http://ift.tt/2iZyjan
