Do You Have to Use Your Credit Cards to Have A Credit Score Over 700?

One of our readers, Matt, sent us this question:

I am 36 make 100K and have no credit cards or savings. I am married with 4 kids 9-15. I have a mortgage (30year fixed 6.125%) I owe about 79K, payment is $800, 2 new cars with $359 5% (26K balance 5 years left) + $589 0% (28K balance 4 years left). Boat payment $150 6% ($6500 balance with 6 years left)

My score is last I saw just under 700.

How many credit cards should I get to boost my credit score? Should I try to get credit cards with the highest limit? If I do not use the credit cards will they still increase my credit score.
I have always been against using money I did not have, but apparently this is not good for your credit score.

Quote from above
“If you give your accounts time to age, get your total debt to under 10 percent of your available credit”

Does this only refer to credit cards? If I open available line of credit at the bank but do not use it would this also boost my available credit? Do mortgage and auto/boat loan balances get considered as available credit? Or do the count as debt so it equals out? Should I open 2 credit cards, 1 or 3?
Please advise as to how I can boost my credit/FICO score?

Hi Matt, thanks for your question!

Let me pull your questions out and answer them one at a time:

> I have always been against using money I did not have, but apparently this is not good for your credit score.

I totally agree with you there! The truth is the most responsible use of credit is to have plenty of available credit, but not use it.

Having the available lines of credit can act as an additional safety net for your family in a time of need, and as long as you do not use the cards or charge them above 20%-30%, then your score will continue to go up. Just make your payments on time, and keep your balances low.

> How many credit cards should I get to boost my credit score? Should I try to get credit cards with the highest limit? If I do not use the credit cards will they still increase my credit score.

I would try to get two or three rewards credit cards, or at the very least, a couple of low-fee credit cards. Having the cards and not using them will still increase your score.

Open each new account up about 6 months apart to minimize the inquiry damage to your credit score. 2-3 credit accounts is plenty. Do not get cards with no pre-set limit. Some of them report the amount you charge as being the limit, which will not help you raise your score. Just stick to regular Visa or MasterCard accounts.

>If I open available line of credit at the bank but do not use it would this also boost my available credit?

Yes, it will. You can also consider taking out a loan, putting the loan amount in a savings account, and then just using it to repay the loan. You will have to pay the interest on the loan, but the timely payments will raise your score as well.

> Do mortgage and auto/boat loan balances get considered as available credit? Or do the count as debt so it equals out?

It’s pretty much just like a credit card. As far as your credit report is concerned, you borrowed X amount of dollars, and you still owe X amount. The debt-to-credit ratio makes up 30% of your credit score. The end goal is to get the entire amount you owe on everything under 30 percent.

The total financial picture:

You have nice interest rates on your current loans, and you obviously make payments on time. The only part that bothered me was this sentence:

I am 36 make 100K and have no credit cards or savings.

Ok. So, let’s take a look at that. You make 100k a year. You currently owe $139,500 on all your accounts. My very frank advice to you is this: Open a single credit account and then work towards having at least 10k split between a high interest savings account, and an investment account. (Not a retirement account).

Make sure that you are carrying enough life insurance too. You need to have at least $150,000 worth of insurance to pay all of your debts and cover burial expenses. Term life is cheap, and readily available without a physical.

I would go ahead and get one credit card now. Then, wait six months to open up the other new account. Once you have your emergency fund set up, and your insurance in place, consider getting one more; say a low interest, low fee Visa, or maybe a rewards MasterCard. You can get the details on those here.

Three accounts is the most you should really need, and you may not need that many. Check your FICO score periodically to see how well it is going up before you even open up a third account.

The reason I recommend doing things this way is because together your savings fund and your credit cards will be a powerful shield for you and your family in a time of need. Right now, if you were to lose your job, or something were to happen, you would not be able to make your payments.

Having even $5,000 in savings would give you time to find another job, or pay unexpected medical bills. Having your credit cards as a backup to your emergency fund will give you and your family real security no matter what happens. Remember that you do not have to use your cards to raise your score, you just have to have the open accounts.

Thanks again for your question!