Debt; it’s a familiar topic. More than three-quarters of Americans report that they carry some form of debt. Student loans, car payments, or credit cards are the most common. Of course, when you take on a debt by accepting a loan or opening a new credit card, the goal over time is to see that balance drop to zero. Because being debt-free is how you achieve a perfect credit score, right?

Well, truth is, it’s a little more complicated. While it’s certainly possible to have decent credit without carrying debt, adopting successful debt management is the surest way to boost your credit score. And remember, not having an established credit history can seriously limit your ability to borrow, and subsequently, build credit.

So, how do you build your credit history? And is taking on more debt actually good? Let’s find out!

What Creditors Look For

When lenders review potential customers, ideally, they prefer those who have demonstrated a rich and responsibly managed credit history. Basically, they want to see that you have experience managing personal credit. A lack of payment history, good or bad, doesn’t help your credit score; a positive payment history does. And by showing a positive payment history, you are more likely to be approved with lower APRs, more favorable terms, and higher credit limits.

Is More Debt Good?

First of all, you should never take on any debt if you don’t need money. Debt of any kind will increase your burden of payment. And taking on an installment loan solely to bolster your credit history could backfire and prove costly. Luckily, establishing a good credit history doesn’t require open loans or a large number of active credit cards. That’s because lenders look at a number of factors beyond your active debt, and credit reports usually track seven to ten years of data.

Repay It Forward

That final car payment you made two years ago? That provides insight into your repayment ability. Having and using an established credit card with a positive payment history and a zero balance is another good way to strengthen your history. Generally speaking, lenders want to see at least five to six “trades” (credit lines or loans) on your current report. So, keep on making those on-time payments and watch your credit score soar.

Credit Variety Is Key

When making those “trades”, however, it’s important to show a mix of credit types such as mortgage, auto, credit card, installment loans, etc., from a variety of lenders. Though, these trades don’t have to be open ones to earn you favorable consideration. Lenders just want to see that you have a history of meeting your financial obligations. That shows them that you are exactly the type of responsible customer they’re looking for. So, aim for a diverse mix of credit, and demonstrate a history of responsible borrowing if you’d like your credit score to be more attractive to lenders.

Check the Reports

You should always check to see if your potential lender reports your payment history to the credit bureaus. Why is this so important? Because reporting your on-time payments lets lenders know that you’re a responsible borrower.  And you deserve to get credit for all your hard work. Of course, making on-time payments is a sure-fire way to keep your credit score on solid ground—or even improve it.  

So, how can you boost your credit score while building a strong credit history? Just follow these steps to find financial peace of mind.

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