Should you take on debt to help your credit score?

Tess Vigeland Oct 12, 2012
HTML EMBED:
COPY
Calculating your debt. iStockPhoto

Should you take on debt to help your credit score?

Tess Vigeland Oct 12, 2012
Calculating your debt. iStockPhoto
HTML EMBED:
COPY

Imagine this: You’ve just finished graduate school and have gotten a great job at a top university — but the future remains uncertain.

You’ve managed to escape out of higher education with relatively little debt — just about $2,000 on credit cards and around $6,000 in student loans. You’ve just bought a new car with four-year financing totaling something in the ballpark of $19,000.

Should you eliminate as much of that debt as possible? Or would having a car loan for at least two years be beneficial to build your credit for an eventual mortgage?

Dan from California faces that situation. He wonders: “Are there types of debt that I should cultivate and keep open with some sort of balance for longer than a year in order to develop more credit for further on down the line?”

MSN Money’s Liz Weston says typically the answer is no.

“If you have an active credit card that you’re using, you don’t need to carry a balance on that to help your credit,” she says.

“You don’t need to stretch out any kind of loan to improve your credit. Even after you close it, it’s still going to be on your credit file for a awhile and contributing to your score,” she adds.

Weston says that it’s a misnomer that you need to be in debt to have good credit scores. “It is true if you’re trying to improve really bad scores, sometimes it can help to go out and get an installment loan to add to the mix as well as a credit card that you don’t carry a debt on,” she says. 

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.