Dear Liz: I recently got a loan to buy a new car, but my bank refused to give me its best, 1.5% interest rate and I was forced to take a 2.25% rate. My credit scores are in the mid-700s, but the bank denied me its best rate because I have no revolving credit. I haven’t had credit cards for over 20 years. I have bank accounts and installment loans, including a 20-year loan I paid off in two years and a 30-year loan that was paid off in less than five years. Since when is it a law that I have to have credit cards, and why should I be discriminated against for not using revolving credit? It should be against the law (and probably is) to force me to use revolving credit cards when I do not wish to, and suffer a higher rate if I don’t.
Answer: Lenders aren’t required to give you their best rates because you think you deserve them. They are allowed to use reasonable criteria to judge your creditworthiness, which can include credit scoring formulas — and those typically reward people for having and using different types of credit (credit cards as well as installment loans). You can have good scores using only one type of credit, but the best scores are typically reserved for credit reports that have both.
The good news is that you don’t have to carry credit card debt to have great credit scores. Using two or three cards lightly and paying them off in full each month is the best way, both for your scores and your pocketbook.
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