• What is the oldest line of credit you still have?
• What is the ratio of available credit to income?
• What is the ratio of money owed to available credit?
• Do you have a history of on time payments?

There are many more, and I've certainly oversimplified even these to make the point. If you have never borrowed money, or opened a credit card account, then you do not have a long credit history, you have no record of making on time payments, you don't have a high ratio of available credit to borrowed money, and in short, your credit rating is probably below average. Of course a very high income and a large savings certainly helps. At some point in your life, you are going to need to borrow money, whether it is for a new car, your first home, or even unexpected medical bills. When you do, the interest rate you pay will depend upon your credit rating.

I would definitely recommend having at least one credit card. If you tend to be impulsive and may spur of the moment purchases, then you should definitely not keep the credit card with you. Put it away in a safe deposit box or in your sock drawer, or anywhere where you can't use it to buy electronic gadgets, clothes, or whatever it is that you can't resist. You do not want to use a credit card to buy luxury items that you could not afford to buy with cash, not ever.

On the other hand, there are cards that offer rewards for using them. These might come in the form of cash back, frequent flyer miles or some other type of bonus that accrues whenever you use the card. Since the credit card companies are using these benefits to try to draw you into debt, use them right back. Set up automatic payments of all your monthly bills through your credit card, make sure they are recorded as purchases and not cash advances though. If you see them recorded as a cash advance, you'll probably be charged an additional fee that outweighs the benefit. Use a separate bank account to pay your credit card each month. Make sure you deposit enough money in that account each month to pay all your bills, and pay off the card in full each month.

This way you are using the card enough to avoid non-use charges that some banks use as another tool to try to get you to go into debt, but you also avoid paying interest on any carried balances. On top of that, you earn regular bonuses for each payment you make with the credit card. In no time at all you may have enough frequent flyer points to take a vacation, paid for by your credit card company. Just watch your incidental spending while you're there. In fact, if you routinely put a little extra into the account you use to pay off the credit card each month, it will build up over time and you might have some spending money to take along with you.

Of course, the rewards are incidental to building your credit history and improving your credit rating. Don't be tempted to buy things just for the rewards, but use the card for things that you need and for which you can afford to pay cash. You can't get caught in the credit card trap if you don't put your foot in it in the first place.

Author: Brad Sylvester