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How to Use Debt to Improve Your Credit


People have been arguing about whether or not having (and carrying) debt is good for your credit since the credit score and credit tracking process was invented. There are those who insist that having zero debt and paying for everything in cash is the best way to go. If you’re not great with your money and you don’t ever need to buy a house or car–or are wealthy enough to pay for both in cash all at once–this might be true for you. For most of us, though, proving that we can handle debt responsibly is how we eventually convince mortgage brokers to help us buy home and auto dealerships to finance a new car.

And you can’t prove that you can handle debt responsibly without going into debt in the first place. That doesn’t mean, however, that you have to resign yourself to taking on huge amounts of debt to prove that you can handle the payment process responsibly. On the contrary! There are plenty of ways that you can use credit and debt that won’t tank your credit score or mess up your finances. Here are some of them.

Mind the Rates

Don’t just take the first line of credit you can find. You will want to “shop around” to find cards and lines of credit that won’t charge you a mountain of fees or a ton of interest every month. Of course, according to, “Rate and term can vary depending on: credit history, collateral type, age of collateral, loan amount, loan term, down payment amount, state of residency and other criteria.” If you don’t have a long credit history (or have a history of irresponsibility with debt) you’ll probably have to pay higher rates. Even so, compare at least a few different credit lines before settling on the one or two that you will use to build your credit score and establish your history.

Secured Cards

If you want to ease your way into the world of credit and debt repayment, you might want to start small, with a secured card that has a low limit. Secured cards are cards that you can get through your bank by putting down money as collateral. Most require at least a three hundred dollar deposit. However much you put down is what will determine your credit limit. These credit lines are monitored and reported to the credit reporting bureaus just like any other type of loan or card.

With a lower limit, you can use the card on small purchases, pay them off quickly, and won’t be tempted into biting off more than you can chew, debt-wise. Over time as you responsibly pay on your secured account you might be offered a larger credit limit and an upgrade to an unsecured card.

Using Debt Responsibly

Once you have a line of credit somewhere, it is important that you use it responsibly. This means that you shouldn’t immediately go out and blow your credit limit just because you can. Instead, follow these tips:

Never charge more than you know you can afford to pay off within two months.

Start small–use the card for groceries and other purchases and then go home and pay off at least 50% of the charge right away.

Always pay more than the minimum amount due. Even $10-$15 more is helpful in keeping the interest from compromising your account.

Never use your credit card to get cash. Cash advances are often charged a higher interest rate and are paid off after the “regular” purchases have been cleared from your account.

These are just some of the tips that will help you get used to using credit without letting the temptation to spend get the better of you. Remember: credit isn’t a grant. It’s a loan that you have to repay! Use it responsibly so that later you can get the big things you really want.


  1. I always think it’s a little short-sighted to completely eschew credit cards completely. You need to have some sort of credit history, and if you have enough self-control to pay for everything in cash (assuming you don’t spend every cent of that cash) then you probably have enough control to deal responsibly with a credit card.

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