Credit works in mysterious, sometimes contradictory ways. If you have good financial habits and do the right thing with your money, it seems like your credit would be in good shape. It doesn’t always work out that way, though. Despite your best intentions, smart financial moves aren’t always the best credit moves.


Not Using Credit Cards at All

Considering the fact that the average American has over $15,000 worth of consumer debt, you’d think never using credit cards would be a good thing. That could be the mindset behind the 67% of people between the ages of 18 and 29 who don’t have a major credit card. According to Bankrate, who commissioned this survey:

Even as the economy and job prospects have improved, this generation hasn’t warmed to the idea of using credit as a financial tool...”I’ve never owned nor have ever wanted to own a credit card,” says Kristian Rivera, 25, a digital marketing specialist in New York City. “It wasn’t really a decision that I made, but growing up I was warned of the risks of having a credit card and advised to put off getting one as long as possible.”


Yes, playing with credit cards can indeed be risky. If you don’t make payments in full and on time, you can get caught in a debt trap that’s really hard to escape.

At the same time, staying away from credit altogether keeps you from building credit in the first place. Like it or not, we need credit not just to get a mortgage or a car loan, but for non-credit-related things, too. Landlords look at your credit when you apply for an apartment, for example, and so do some employers. What’s more, bill providers are legally allowed to charge more for customers with “risky” credit. If you don’t have credit at all, they might consider you a risk.


The trick is to build credit responsibly. You could obviously open up a regular credit card and just not carry a balance, but if you’re afraid of the temptation, here are a few other options:

These are just a few options available, but they’re some of the easiest for getting started with credit if you don’t want to go with a traditional card.


Rejecting a Higher Credit Limit

If you’re financially responsible, you probably don’t buy into the hype of a super high credit limit. When a credit card company offers to boost your limit, your gut reaction may be to reject it. You don’t want to tempt yourself to actually use that extra credit, after all.


It seems like a responsible move, but it could actually keep you from establishing a higher score, thanks to something called credit utilization.

In a nutshell, credit utilization is the amount of credit you’re actually using compared to the amount of credit you have available to you. If your credit limit is $10,000, for example, and you’re in $1,000 worth of debt, your credit utilization ratio is 10%. The lower this ratio, the higher your score. Obviously, you can keep this ratio nice and low by keeping your debt low. Another way to increase it, though, is with a higher limit. If your credit card company increases your limit to $20,000, your ratio suddenly drops to 5% and, theoretically, your score increases.


In fact, here’s a breakdown of how your ratio affects your credit score, according to Credit Karma.

Credit Utilization Ratio Score 0% 692 1-10% 753 11-20% 715 21-30% 690 31-40% 671 41-50% 656 51-60% 642 61-70% 630 71-80% 619 81-90% 607 91-100% 588 100% 563


There’s another interesting trend to note here: your score at even 1% utilization is better than not utilizing any credit at all. This doesn’t mean you should keep a balance on your card to build your score (which is a common myth) but using it and paying it off is indeed a good way to boost your score—without actually incurring debt.




There’s an important caveat with this move, though. Sometimes calling a credit card company to increase your limit results in a hard pull of your credit. This means the company will pull your report, and that can ding your score for six months or so. So in the short-term, it can actually work against you. It’s something to keep in mind if you’re looking to take out a loan or mortgage in the coming months.


Closing an Old Card

Let’s say you’ve finally paid off your last credit card and you’re officially out of debt. That’s awesome! And you might be tempted to kill your card(s) to celebrate. The first time I tried this, I called my credit card company to close the account and they warned me that closing it could actually lower my score. Of course, I thought they were full of crap and just wanted to keep tempting me with debt. There’s probably some truth to that, but they’re right: closing an old account can indeed lower your score.


This is because 15% of your score depends on the length of your credit history. According to FICO, this includes:

how long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts how long specific credit accounts have been established how long it has been since you used certain accounts

It’s not just history, either. Your credit utilization makes up 30% of your score. When you close an account, you lower your available credit, which means your utilization ratio increases. As a result, your score would likely drop. However, one FICO spokeswoman told CreditCards.com that this drop should be “minimal and short-lived” if you have good credit to begin with.


Your best bet is to keep the account open and monitor it periodically. I track my old credit card accounts with Mint to make sure the balance is always at zero and no one has stolen my card info. Depending on the card, you could also set up balance alert so you’re automatically notified when there’s been a transaction on the card. If you’re worried about using it, destroy the physical card and make sure you don’t have it linked to any online shopping accounts.


Settling Old Debts

When people want to remedy their financial screw-ups, they often turn to debt settlement. It’s kind of a hit or miss solution.


With debt settlement, you typically work with a third party company who buys your original debt at a deep discount, and then gets you to pay a portion of it to make a profit. Best case scenario, the debt settlement company agrees to mark your old account “paid as agreed,” but they’re not required to do that. Over at CreditCards.com, credit expert Todd Ossenfort explains how settling a past debt can make your score even worse:

When you settle a debt for less than is owed, your credit history will take a severe beating... if you are current on your accounts now, settling your debt will make your credit history much, much worse. The reason is because a creditor is only willing to settle a debt for less than the full amount owed, when they believe collecting part of the debt is better than collecting nothing at all. When you are current with payments, the creditor has no reason to believe they will not be able to collect the full amount, and they are very unlikely to consider settling your account.


However, if your debt is already more than 90 days past due, Ossenfort notes that settlement probably isn’t going to make your score much worse.

Contrary to what many believe, there’s actually no single credit score. Different companies use different scores to gauge your creditworthiness, but the most common is your general FICO score and it serves as a decent gauge of your overall credit. FICO offers some general insight into how they calculate this number: your credit utilization, payment history, and account history make up the bulk of your score.




When you know how your score is calculated in the first place, you have a better idea of how to maintain it—sometimes in spite of your best intentions.

Illustration by Angelica Alzona