Ask Kate Will Debt Raise Credit Scores

by Cangel from Tampa, Florida, USA

Question: Ask Kate Will Debt Raise Credit Scores To Owe or Not to Owe That is the Mortgage Question! How exactly does the credit score affect the possibility of getting a mortgage or loan? And what affects my credit score?

I like to keep on top of my bills. I pay my credit cards on time and I have paid off my car. I do not own a home and I always pay my rent on time. I live by the philosophy that if you can’t pay for it in a reasonable time, you don’t really need it.

Some of my friends say that this makes my credit score go up. Others say it keeps my credit score down and I should have something I owe on. This puts me in a dilemma. If I have low credit score it is supposed to be difficult to get a loan if I really need one, or the interest rate will be high. I think I am doing great if I have no outstanding bills but I am not sure.

Could you tell me how whether I pay on time or set up payments affects my credit score. Is it better to owe money or not. I am getting mixed messages from my friends and the sites I have checked out. I don’t need to take out a loan or mortgage right now but I would like to be ahead of the situation before it occurs.

Answer: Ask Kate Will Debt Raise Credit Scores

Dear Cangel, Congratulations for keeping on top of your bills and living responsibly!

I'd never advise anyone to go into debt for the sole purpose of raising a credit score. As far as credit scores go, there is bad debt and good debt. Credit cards with high balances are thought to reduce credit scores. Mortgages and car loans are thought to improve credit scores. Some advise a mixture of credit, such as car loans, student loans, mortgages, department credit cards, and major credit cards. Instead I'd say if in the normal course of living if you need credit, always pay it on time.

Credit card debt can be tricky. Having credit cards can be helpful but you want to pay them off each month. Credit card debt, in general, decreases credit scores. But having available credit on credit cards increases credit scores.

Mortgage Tip! Be sure to read the fine print of your credit card agreements. Some charge interest as soon as you make a purchase, even if you pay the balance in full each month.

My husband and I pay everything with a credit card, then write one check at the end of each month, paying off the balance as if it's a debit card. We find using a credit card this way helps us track our expenditures also.

Credit scores are only one factor in determining mortgage loan approval. So don't rush out to acquire debt in the hopes of raising credit scores. Live your life within your means and according to your dreams and goals. If credit fits into your life, acquire it responsibly and pay it on time.

Mortgage Tip! In the short term, applying for credit, especially new credit cards, temporarily lowers credit scores. So don't expect to fix a credit score fast by acquiring new credit.

That said, it is important to note that banks are reluctant to loan significant amounts of money to individuals with little or no credit history. You can't blame a bank for relying on credit scores to predict their chances of being paid back.

It is my opinion that you need to follow your dreams. If you prefer being debt free, there are other ways to mortgage a home than a long term 30 year fixed rate mortgage. Have you considered a 15 year fixed rate mortgage? Depending on the price of the home, you could have an affordable monthly payment and pay off your mortgage in 15 years.

Imagine paying off a mortgage even sooner. Discover how with my easy home mortgage payment calculator. Once you start playing with it, you might not be able to stop!

Best wishes and good luck,




P.S. Go to my Best Mortgage Rate Blog, an entertaining source of mortgage information. Subscribe now to the RSS feed.

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